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

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Fable Media Group:

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

0.31 = kr42m ÷ (kr181m - kr46m) (Based on the trailing twelve months to June 2024).

Thus, Fable Media Group has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 25% earned by companies in a similar industry.

View our latest analysis for Fable Media Group

Above you can see how the current ROCE for Fable Media Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Fable Media Group .

So How Is Fable Media Group's ROCE Trending?

Fable Media Group has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 275% over the trailing two years. The company is now earning kr0.3 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 28% less than it was two years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 25% 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.

What We Can Learn From Fable Media Group's ROCE

In summary, it's great to see that Fable Media Group has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 28% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Fable Media Group, you might be interested to know about the 5 warning signs that our analysis has discovered.

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.