Yahoo Finance Celtic's (LON:CCP) Returns On Capital Are Heading Higher
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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, Celtic (LON:CCP) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Celtic, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.066 = UK£9.7m ÷ (UK£212m - UK£66m) (Based on the trailing twelve months to December 2023).
Therefore, Celtic has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 10%.
See our latest analysis for Celtic
In the above chart we have measured Celtic's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Celtic for free.
What Can We Tell From Celtic's ROCE Trend?
We're delighted to see that Celtic is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 6.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Celtic is utilizing 38% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
In summary, it's great to see that Celtic has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 12% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
Celtic does have some risks though, and we've spotted 2 warning signs for Celtic that you might be interested in.
While Celtic 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
