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What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Stingray Group's (TSE:RAY.A) returns on capital, so let's have a look.
Understanding 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. To calculate this metric for Stingray Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CA$94m ÷ (CA$819m - CA$102m) (Based on the trailing twelve months to September 2024).
Thus, Stingray Group has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Media industry.
Check out our latest analysis for Stingray Group
Above you can see how the current ROCE for Stingray Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Stingray Group .
The Trend Of ROCE
Stingray Group has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 51% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line
As discussed above, Stingray Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 36% to shareholders. So with that in mind, we think the stock deserves further research.
If you want to continue researching Stingray Group, you might be interested to know about the 3 warning signs that our analysis has discovered.