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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Platform Group's (ETR:FSNT) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
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 Platform Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = €42m ÷ (€259m - €116m) (Based on the trailing twelve months to June 2024).
Thus, Platform Group has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 8.9% earned by companies in a similar industry.
Check out our latest analysis for Platform Group
In the above chart we have measured Platform Group'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 Platform Group .
How Are Returns Trending?
The trends we've noticed at Platform Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 582%. So we're very much inspired by what we're seeing at Platform Group thanks to its ability to profitably reinvest capital.
Another thing to note, Platform Group has a high ratio of current liabilities to total assets of 45%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
Our Take On Platform Group's ROCE
All in all, it's terrific to see that Platform Group is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 52% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.