eMedia Holdings (JSE:EMH) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at eMedia Holdings (JSE:EMH) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 eMedia Holdings:

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

0.11 = R538m ÷ (R5.6b - R754m) (Based on the trailing twelve months to March 2022).

So, eMedia Holdings has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

View our latest analysis for eMedia Holdings

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

What Can We Tell From eMedia Holdings' ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at eMedia Holdings. We found that the returns on capital employed over the last five years have risen by 218%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 40% less than it was five years ago, which can be indicative of a business that's improving its efficiency. eMedia Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On eMedia Holdings' ROCE

In summary, it's great to see that eMedia Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 28% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 2 warning signs for eMedia Holdings you'll probably want to know about.

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.

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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.