S.C. Romcarbon (BVB:ROCE) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at S.C. Romcarbon (BVB:ROCE) so let's look a bit deeper.

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. Analysts use this formula to calculate it for S.C. Romcarbon:

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

0.04 = RON6.5m ÷ (RON249m - RON86m) (Based on the trailing twelve months to March 2021).

Therefore, S.C. Romcarbon has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 11%.

View our latest analysis for S.C. Romcarbon

Historical performance is a great place to start when researching a stock so above you can see the gauge for S.C. Romcarbon's ROCE against it's prior returns. If you're interested in investigating S.C. Romcarbon's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. We found that the returns on capital employed over the last five years have risen by 53%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 38% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From S.C. Romcarbon's ROCE

In summary, it's great to see that S.C. Romcarbon has been able to turn things around and earn higher returns on lower amounts of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

S.C. Romcarbon does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While S.C. Romcarbon may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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