We're Watching These Trends At Ecoclime Group (STO:ECC B)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Ecoclime Group (STO:ECC B) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Ecoclime Group is:

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

0.014 = kr2.7m ÷ (kr224m - kr33m) (Based on the trailing twelve months to September 2020).

So, Ecoclime Group has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Building industry average of 12%.

View our latest analysis for Ecoclime Group

In the above chart we have measured Ecoclime Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ecoclime Group.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't look fantastic because it's fallen from 3.2% five years ago, while the business's capital employed increased by 2,098%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Ecoclime Group's earnings and if they change as a result from the capital raise.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Ecoclime Group is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 57% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Ecoclime Group, we've discovered 3 warning signs that 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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