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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Centaur Media (LON:CAU) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Centaur Media, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = UK£6.4m ÷ (UK£62m - UK£17m) (Based on the trailing twelve months to June 2024).
Therefore, Centaur Media has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Media industry.
Check out our latest analysis for Centaur Media
Above you can see how the current ROCE for Centaur Media 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 Centaur Media .
So How Is Centaur Media's ROCE Trending?
We're delighted to see that Centaur Media is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 14% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 37%. Centaur Media could be selling under-performing assets since the ROCE is improving.
In Conclusion...
In summary, it's great to see that Centaur Media has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you want to know some of the risks facing Centaur Media we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.