Investors Could Be Concerned With Sustainion Group's (NGM:SUSG) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Sustainion Group (NGM:SUSG), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Sustainion Group, this is the formula:

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

0.00013 = kr22k ÷ (kr241m - kr72m) (Based on the trailing twelve months to June 2024).

Therefore, Sustainion Group has an ROCE of 0.01%. Ultimately, that's a low return and it under-performs the Electronic industry average of 14%.

View our latest analysis for Sustainion Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sustainion Group's ROCE against it's prior returns. If you're interested in investigating Sustainion Group's past further, check out this free graph covering Sustainion Group's past earnings, revenue and cash flow.

So How Is Sustainion Group's ROCE Trending?

On the surface, the trend of ROCE at Sustainion Group doesn't inspire confidence. Over the last three years, returns on capital have decreased to 0.01% from 4.2% three years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 30%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 0.01%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

What We Can Learn From Sustainion Group's ROCE

To conclude, we've found that Sustainion Group is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 25% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Sustainion Group, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

While Sustainion Group 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.