Crookes Brothers (JSE:CKS) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Crookes Brothers (JSE:CKS) so let's look a bit deeper.

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

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. Analysts use this formula to calculate it for Crookes Brothers:

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

0.063 = R100m ÷ (R1.8b - R254m) (Based on the trailing twelve months to September 2024).

Therefore, Crookes Brothers has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Food industry average of 9.7%.

View our latest analysis for Crookes Brothers

Historical performance is a great place to start when researching a stock so above you can see the gauge for Crookes Brothers' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Crookes Brothers.

What Does the ROCE Trend For Crookes Brothers Tell Us?

Crookes Brothers is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 40% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To sum it up, Crookes Brothers is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 27% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Crookes Brothers we've found 4 warning signs (2 can't be ignored!) that you should be aware of before investing here.

While Crookes Brothers 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.