The Return Trends At Flexion Mobile (STO:FLEXM) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Flexion Mobile (STO:FLEXM) and its trend of ROCE, we really liked what we saw.

What Is 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 Flexion Mobile:

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

0.046 = UK£1.2m ÷ (UK£42m - UK£15m) (Based on the trailing twelve months to March 2023).

Thus, Flexion Mobile has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 9.9%.

View our latest analysis for Flexion Mobile

Above you can see how the current ROCE for Flexion Mobile compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Flexion Mobile here for free.

SWOT Analysis for Flexion Mobile

What Can We Tell From Flexion Mobile's ROCE Trend?

Flexion Mobile has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.6% on its capital. In addition to that, Flexion Mobile is employing 298% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

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 36% 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.

The Key Takeaway

Overall, Flexion Mobile gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 73% return over the last three years. In light of that, we think it's worth looking further into this stock because if Flexion Mobile can keep these trends up, it could have a bright future ahead.

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

While Flexion Mobile isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.