Stock Analysis

Eastman Kodak (NYSE:KODK) Is Looking To Continue Growing Its Returns On Capital

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NYSE:KODK

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Eastman Kodak (NYSE:KODK) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Eastman Kodak:

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

0.07 = US$149m ÷ (US$2.4b - US$266m) (Based on the trailing twelve months to September 2024).

So, Eastman Kodak has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 9.9%.

See our latest analysis for Eastman Kodak

NYSE:KODK Return on Capital Employed January 10th 2025

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 Eastman Kodak's past further, check out this free graph covering Eastman Kodak's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.0%. The amount of capital employed has increased too, by 104%. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 11%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Eastman Kodak has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Eastman Kodak's ROCE

To sum it up, Eastman Kodak has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 68% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Eastman Kodak can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Eastman Kodak that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're here to simplify it.

Discover if Eastman Kodak might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.