Clemondo Group's (STO:CLEM) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
February 23, 2022
OM:CLEM
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Clemondo Group (STO:CLEM) looks quite promising in regards to its trends of return on capital.

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 Clemondo Group:

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

0.17 = kr23m ÷ (kr218m - kr80m) (Based on the trailing twelve months to December 2021).

Thus, Clemondo Group has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Household Products industry.

Check out our latest analysis for Clemondo Group

roce
OM:CLEM Return on Capital Employed February 23rd 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Clemondo Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Clemondo Group, check out these free graphs here.

What Can We Tell From Clemondo Group's ROCE Trend?

The fact that Clemondo Group is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 17% on its capital. In addition to that, Clemondo Group is employing 24% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 37%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Clemondo Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Clemondo Group's ROCE

Overall, Clemondo Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 46% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Clemondo Group does come with some risks, and we've found 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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