Today we'll look at Iktinos Hellas S.A. Greek Marble Industry Technical and Touristic Company (ATH:IKTIN) and reflect on its potential as an investment. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.
First of all, we'll work out how to calculate ROCE. Next, we'll compare it to others in its industry. Last but not least, we'll look at what impact its current liabilities have on its ROCE.
Understanding Return On Capital Employed (ROCE)
ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. In general, businesses with a higher ROCE are usually better quality. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.'
How Do You Calculate Return On Capital Employed?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Iktinos Hellas Greek Marble Industry Technical and Touristic:
0.25 = €20m ÷ (€118m - €37m) (Based on the trailing twelve months to December 2018.)
Therefore, Iktinos Hellas Greek Marble Industry Technical and Touristic has an ROCE of 25%.
View our latest analysis for Iktinos Hellas Greek Marble Industry Technical and Touristic
Does Iktinos Hellas Greek Marble Industry Technical and Touristic Have A Good ROCE?
ROCE can be useful when making comparisons, such as between similar companies. In our analysis, Iktinos Hellas Greek Marble Industry Technical and Touristic's ROCE is meaningfully higher than the 9.4% average in the Metals and Mining industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Regardless of the industry comparison, in absolute terms, Iktinos Hellas Greek Marble Industry Technical and Touristic's ROCE currently appears to be excellent.
In our analysis, Iktinos Hellas Greek Marble Industry Technical and Touristic's ROCE appears to be 25%, compared to 3 years ago, when its ROCE was 11%. This makes us think about whether the company has been reinvesting shrewdly. You can click on the image below to see (in greater detail) how Iktinos Hellas Greek Marble Industry Technical and Touristic's past growth compares to other companies.
It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is, after all, simply a snap shot of a single year. We note Iktinos Hellas Greek Marble Industry Technical and Touristic could be considered a cyclical business. How cyclical is Iktinos Hellas Greek Marble Industry Technical and Touristic? You can see for yourself by looking at this free graph of past earnings, revenue and cash flow.