Return Trends At Intereuropa d. d (LJSE:IEKG) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Intereuropa d. d (LJSE:IEKG), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Intereuropa d. d:

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

0.044 = €7.9m ÷ (€233m - €54m) (Based on the trailing twelve months to September 2023).

Therefore, Intereuropa d. d has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Logistics industry average of 15%.

View our latest analysis for Intereuropa d. d

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're interested in investigating Intereuropa d. d's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Intereuropa d. d Tell Us?

The returns on capital haven't changed much for Intereuropa d. d in recent years. The company has consistently earned 4.4% for the last five years, and the capital employed within the business has risen 28% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Intereuropa d. d has done well to reduce current liabilities to 23% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Intereuropa d. d's ROCE

In conclusion, Intereuropa d. d has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 44% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Intereuropa d. d (of which 1 can't be ignored!) that you should know about.

While Intereuropa d. d 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.