Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Eagle Eye Solutions Group (LON:EYE) so let's look a bit deeper.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Eagle Eye Solutions Group is:

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

0.023 = UK£678k ÷ (UK£48m - UK£19m) (Based on the trailing twelve months to June 2023).

So, Eagle Eye Solutions Group has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Media industry average of 11%.

View our latest analysis for Eagle Eye Solutions Group

In the above chart we have measured Eagle Eye Solutions Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Eagle Eye Solutions Group here for free.

The Trend Of ROCE

Eagle Eye Solutions Group has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.3% on its capital. Not only that, but the company is utilizing 302% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

In summary, it's great to see that Eagle Eye Solutions Group has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 288% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Eagle Eye Solutions Group can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Eagle Eye Solutions Group, we've discovered 3 warning signs that you should be aware of.