Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So, when we ran our eye over Precio Fishbone's (STO:PRCO B) trend of ROCE, we 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. The formula for this calculation on Precio Fishbone is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = kr21m ÷ (kr211m - kr73m) (Based on the trailing twelve months to December 2022).
Thus, Precio Fishbone has an ROCE of 15%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.
Check out our latest analysis for Precio Fishbone
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'd like to look at how Precio Fishbone has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
SWOT Analysis for Precio Fishbone
- Currently debt free.
- Earnings declined over the past year.
- Dividend is low compared to the top 25% of dividend payers in the IT market.
- Current share price is above our estimate of fair value.
- PRCO B's financial characteristics indicate limited near-term opportunities for shareholders.
- Lack of analyst coverage makes it difficult to determine PRCO B's earnings prospects.
- Dividends are not covered by cash flow.
So How Is Precio Fishbone's ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Precio Fishbone has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Precio Fishbone's ROCE
To sum it up, Precio Fishbone has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 108% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
On a final note, we've found 2 warning signs for Precio Fishbone that we think you should be aware of.
While Precio Fishbone may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
About OM:PRCO B
Precio Fishbone
Provides Microsoft-based solutions for the private and public sectors in Sweden, Denmark, the United Kingdom, Canada, and Vietnam.
Flawless balance sheet established dividend payer.
