Will S.C. Prebet Aiud's (BVB:PREB) Growth In ROCE Persist?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at S.C. Prebet Aiud (BVB:PREB) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for S.C. Prebet Aiud, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.20 = RON9.7m ÷ (RON54m - RON4.6m) (Based on the trailing twelve months to December 2020).

So, S.C. Prebet Aiud has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 7.7% it's much better.

Check out our latest analysis for S.C. Prebet Aiud

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating S.C. Prebet Aiud's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For S.C. Prebet Aiud Tell Us?

The trends we've noticed at S.C. Prebet Aiud are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 62% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, S.C. Prebet Aiud has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 2 warning signs for S.C. Prebet Aiud that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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