Sustainion Group's (NGM:SUSG) Returns On Capital Are Heading Higher

By
Simply Wall St
Published
January 11, 2022
NGM:SUSG
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So on that note, Sustainion Group (NGM:SUSG) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Sustainion Group is:

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

0.0056 = kr905k ÷ (kr182m - kr22m) (Based on the trailing twelve months to September 2021).

Thus, Sustainion Group has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Electronic industry average of 17%.

View our latest analysis for Sustainion Group

roce
NGM:SUSG Return on Capital Employed January 11th 2022

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 want to delve into the historical earnings, revenue and cash flow of Sustainion Group, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Sustainion Group has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.6% on its capital. Not only that, but the company is utilizing 5,292% more capital than before, but that's to be expected from a company 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 12%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To the delight of most shareholders, Sustainion Group has now broken into profitability. Considering the stock has delivered 16% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Sustainion Group, we've spotted 3 warning signs, and 1 of them is significant.

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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