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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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, Eagle Eye Solutions Group (LON:EYE) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. 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)
0.022 = UK£831k ÷ (UK£51m - UK£14m) (Based on the trailing twelve months to June 2024).
Therefore, Eagle Eye Solutions Group has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Media industry average of 10%.
See 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Eagle Eye Solutions Group .
What The Trend Of ROCE Can Tell Us
The fact that Eagle Eye Solutions Group is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Eagle Eye Solutions Group is utilizing 586% more capital than it was five years ago. 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.
On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Bottom Line On Eagle Eye Solutions Group's ROCE
To the delight of most shareholders, Eagle Eye Solutions Group has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.