Yahoo Finance We Like These Underlying Return On Capital Trends At One Media iP Group (LON:OMIP)
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, One Media iP Group (LON:OMIP) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 One Media iP Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.068 = UK£1.2m ÷ (UK£18m - UK£1.2m) (Based on the trailing twelve months to April 2022).
So, One Media iP Group has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 11%.
Check out our latest analysis for One Media iP Group
Above you can see how the current ROCE for One Media iP Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is One Media iP Group's ROCE Trending?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.8%. Basically the business is earning more per dollar of capital invested and in addition to that, 373% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On One Media iP Group's ROCE
To sum it up, One Media iP Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 112% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if One Media iP Group can keep these trends up, it could have a bright future ahead.
If you want to know some of the risks facing One Media iP Group we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
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