In This Article:
If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Irish Continental Group (LON:ICGC), we don't think it's current trends fit the mold of a multi-bagger.
Understanding 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 Irish Continental Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.062 = €26m ÷ (€604m - €181m) (Based on the trailing twelve months to June 2022).
So, Irish Continental Group has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 13%.
View our latest analysis for Irish Continental Group
Above you can see how the current ROCE for Irish Continental Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
In terms of Irish Continental Group's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 31%, but since then they've fallen to 6.2%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
What We Can Learn From Irish Continental Group's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Irish Continental Group is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 13% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
One final note, you should learn about the 5 warning signs we've spotted with Irish Continental Group (including 2 which are a bit concerning) .
While Irish Continental Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.