CETIS Graphic and Documentation Services d.d (LJSE:CETG) Knows How To Allocate Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, the ROCE of CETIS Graphic and Documentation Services d.d (LJSE:CETG) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for CETIS Graphic and Documentation Services d.d, this is the formula:

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

0.20 = €21m ÷ (€129m - €26m) (Based on the trailing twelve months to December 2023).

Thus, CETIS Graphic and Documentation Services d.d has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 11%.

View our latest analysis for CETIS Graphic and Documentation Services d.d

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

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from CETIS Graphic and Documentation Services d.d. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 132%. So we're very much inspired by what we're seeing at CETIS Graphic and Documentation Services d.d thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that CETIS Graphic and Documentation Services d.d can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

CETIS Graphic and Documentation Services d.d does have some risks, we noticed 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

CETIS Graphic and Documentation Services d.d is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

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