Yahoo Finance Here's What's Concerning About Infas Holding's (FRA:IFS) Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Infas Holding (FRA:IFS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Infas Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.065 = €2.3m ÷ (€54m - €19m) (Based on the trailing twelve months to June 2023).
So, Infas Holding has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.6%.
See our latest analysis for Infas Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for Infas Holding's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Infas Holding, check out these free graphs here.
So How Is Infas Holding's ROCE Trending?
On the surface, the trend of ROCE at Infas Holding doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.5% from 27% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
In Conclusion...
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Infas Holding. In light of this, the stock has only gained 0.3% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
Infas Holding does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
While Infas Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
