Returns On Capital Are Showing Encouraging Signs At CETIS Graphic and Documentation Services d.d (LJSE:CETG)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at CETIS Graphic and Documentation Services d.d (LJSE:CETG) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.18 = €12m ÷ (€82m - €17m) (Based on the trailing twelve months to December 2021).

Thus, CETIS Graphic and Documentation Services d.d has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.7% it's much better.

Check out 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 want to delve into the historical earnings, revenue and cash flow of CETIS Graphic and Documentation Services d.d, check out these free graphs here.

What Can We Tell From CETIS Graphic and Documentation Services d.d's ROCE Trend?

The trends we've noticed at CETIS Graphic and Documentation Services d.d are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. 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 54%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On CETIS Graphic and Documentation Services d.d's ROCE

All in all, it's terrific to see that CETIS Graphic and Documentation Services d.d is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

CETIS Graphic and Documentation Services d.d does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is concerning...

While CETIS Graphic and Documentation Services d.d 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.