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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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at ProCook Group (LON:PROC) and its ROCE trend, we weren't exactly thrilled.
What Is 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. To calculate this metric for ProCook Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.091 = UK£2.6m ÷ (UK£45m - UK£17m) (Based on the trailing twelve months to March 2024).
So, ProCook Group has an ROCE of 9.1%. On its own, that's a low figure but it's around the 9.9% average generated by the Specialty Retail industry.
View our latest analysis for ProCook Group
Above you can see how the current ROCE for ProCook Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ProCook Group for free.
So How Is ProCook Group's ROCE Trending?
In terms of ProCook Group's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 12% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On ProCook Group's ROCE
To conclude, we've found that ProCook Group is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 7.0% to shareholders over the last year. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
ProCook Group does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those can't be ignored...
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.