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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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, Planoptik (ETR:P4O) looks quite promising in regards to its trends of return on capital.
What Is 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. Analysts use this formula to calculate it for Planoptik:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = €1.7m ÷ (€16m - €2.5m) (Based on the trailing twelve months to June 2024).
Thus, Planoptik has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.
Check out our latest analysis for Planoptik
Historical performance is a great place to start when researching a stock so above you can see the gauge for Planoptik's ROCE against it's prior returns. If you're interested in investigating Planoptik's past further, check out this free graph covering Planoptik's past earnings, revenue and cash flow.
The Trend Of ROCE
We like the trends that we're seeing from Planoptik. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 42%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On Planoptik's ROCE
In summary, it's great to see that Planoptik can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 120% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you want to continue researching Planoptik, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Planoptik 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.