Yahoo Finance A Look Into Somero Enterprises' (LON:SOM) Impressive Returns On Capital
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, when we ran our eye over Somero Enterprises' (LON:SOM) trend of ROCE, we really liked what we saw.
What is 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. The formula for this calculation on Somero Enterprises is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.43 = US$27m ÷ (US$72m - US$9.7m) (Based on the trailing twelve months to December 2019).
So, Somero Enterprises has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
View our latest analysis for Somero Enterprises
Above you can see how the current ROCE for Somero Enterprises compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Somero Enterprises.
How Are Returns Trending?
Somero Enterprises deserves to be commended in regards to it's returns. The company has employed 93% more capital in the last five years, and the returns on that capital have remained stable at 43%. Returns like this are the envy of most businesses and given they have repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
Our Take On Somero Enterprises' ROCE
In summary, we're delighted to see that Somero Enterprises has been compounding returns by reinvesting at consistently high rates of return as these are common traits of a multi-bagger. And long term investors would be thrilled with the 101% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
On a final note, we found 3 warning signs for Somero Enterprises (1 is significant) you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
This article by Simply Wall St is general in nature. 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.
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