Why We Like The Returns At Fable Media Group (NGM:FABLE)

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Fable Media Group (NGM:FABLE) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Fable Media Group is:

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

0.35 = kr48m ÷ (kr182m - kr45m) (Based on the trailing twelve months to March 2024).

So, Fable Media Group has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 21% earned by companies in a similar industry.

See our latest analysis for Fable Media Group

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 Fable Media Group's past further, check out this free graph covering Fable Media Group's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Fable Media Group. The figures show that over the last two years, returns on capital have grown by 317%. 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 24% less capital than it was two years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 24% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

In Conclusion...

From what we've seen above, Fable Media Group has managed to increase it's returns on capital all the while reducing it's capital base. And with a respectable 19% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Fable Media Group (of which 1 doesn't sit too well with us!) that you should know about.

Fable Media Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com