If you're looking for a multibagger, there are a few things to keep in mind. One common approach is to look for companies that: Return value Capital employed increasing with growth (ROCE) amount of capital employed. This shows that it is a compounding machine and the earnings can be continuously reinvested into the business to generate higher profits. But when we saw Kip McGrath Education Center (ASX:KME), doesn't seem to tick all of those boxes.
What is return on capital employed (ROCE)?
For those who don't know, ROCE is a measure of a company's annual pre-tax profit (return) on the capital employed in the business. This formula for Kip McGrath Education Center is:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.068 = AU$1.7 million ÷ (AU$36 million – AU$10 million) (Based on the previous 12 months to December 2023).
therefore, Kip McGrath Education Centers' ROCE is 6.8%. Although the absolute profit is low, it is around 7.7% of the average for the consumer services industry.
Check out our latest analysis for Kip McGrath Education Center.
Although the past does not represent the future, it can be helpful to know how a company has performed historically. That's why I created this graph above.If you are interested in delving further into the past of the Kip McGrath Education Center, check out this free A graph showing Kip McGrath Education Center's historical earnings, revenue and cash flow.
What can we learn from Kip McGrath Education Center's ROCE trends?
When it comes to the Kip McGrath Education Center's historical ROCE movement, the trend is not great. About five years ago, the return on equity was 26%, but it has since fallen to 6.8%. However, given that both capital employed and revenue are increasing, it appears that the business is currently pursuing growth for short-term returns. And if increased capital leads to more profits, the company, and by extension its shareholders, will benefit in the long run.
What we can learn from Kip McGrath Education Center's ROCE
Although return on capital has declined in the short term, it is encouraging to see that both Kip McGrath Education Center's revenue and capital employed are increasing. But despite encouraging trends, the stock price is down 60% over the past five years, so there may be an opportunity here for savvy investors. So we recommend researching this stock further to find out what the other fundamentals of the business are telling us.
If you would like to learn more about the Kip McGrath Education Center, we have found the following link. 3 warning signs, And one of them is important.
For those who like investing, solid company, check this out free List of companies with strong balance sheets and high return on equity.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
