In This Article:
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Savor (NZSE:SVR) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Savor is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = NZ$6.3m ÷ (NZ$54m - NZ$20m) (Based on the trailing twelve months to March 2024).
Thus, Savor has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Hospitality industry.
See our latest analysis for Savor
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Savor.
What Can We Tell From Savor's ROCE Trend?
We're delighted to see that Savor is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 19% which is a sight for sore eyes. Not only that, but the company is utilizing 320% more capital than before, but that's to be expected from a company trying to break into profitability. 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.
What We Can Learn From Savor's ROCE
To the delight of most shareholders, Savor has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 73% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.
One more thing to note, we've identified 4 warning signs with Savor and understanding these should be part of your investment process.
While Savor isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.