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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? 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. With that in mind, we've noticed some promising trends at SYZYGY (ETR:SYZ) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for SYZYGY, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = €4.3m ÷ (€80m - €21m) (Based on the trailing twelve months to June 2024).
Thus, SYZYGY has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Media industry average of 9.7%.
Check out our latest analysis for SYZYGY
Above you can see how the current ROCE for SYZYGY 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 analyst report for SYZYGY .
What The Trend Of ROCE Can Tell Us
You'd find it hard not to be impressed with the ROCE trend at SYZYGY. The data shows that returns on capital have increased by 35% over the trailing five years. The company is now earning €0.07 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 36% less than it was five years ago, which can be indicative of a business that's improving its efficiency. SYZYGY may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Key Takeaway
From what we've seen above, SYZYGY has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 64% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you'd like to know about the risks facing SYZYGY, we've discovered 2 warning signs that you should be aware of.
While SYZYGY isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.