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What are the early trends we should look for to identify a stock that could 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Surteco Group (ETR:SUR) and its ROCE trend, we weren't exactly thrilled.
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 Surteco Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0092 = €7.9m ÷ (€1.1b - €223m) (Based on the trailing twelve months to March 2024).
Thus, Surteco Group has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.0%.
View our latest analysis for Surteco Group
In the above chart we have measured Surteco Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Surteco Group .
What Does the ROCE Trend For Surteco Group Tell Us?
In terms of Surteco Group's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 4.6% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On Surteco Group's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Surteco Group is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 29% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
Surteco Group does have some risks though, and we've spotted 1 warning sign for Surteco Group that you might be interested in.