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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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, Fuller Smith & Turner (LON:FSTA) looks quite promising in regards to its trends of return on capital.
What Is 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. The formula for this calculation on Fuller Smith & Turner is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = UK£37m ÷ (UK£720m - UK£56m) (Based on the trailing twelve months to September 2024).
Thus, Fuller Smith & Turner has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.5%.
Check out our latest analysis for Fuller Smith & Turner
In the above chart we have measured Fuller Smith & Turner's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fuller Smith & Turner .
The Trend Of ROCE
Fuller Smith & Turner has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 22% over the last five years. 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.
What We Can Learn From Fuller Smith & Turner's ROCE
To bring it all together, Fuller Smith & Turner has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 29% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
On a separate note, we've found 2 warning signs for Fuller Smith & Turner you'll probably want to know about.