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Perma-Fix Environmental Services (NASDAQ:PESI) Is Experiencing Growth In Returns On Capital

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Simply Wall St
·3 min read
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 when we looked at Perma-Fix Environmental Services (NASDAQ:PESI) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Perma-Fix Environmental Services:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.073 = US$3.4m ÷ (US$79m - US$33m) (Based on the trailing twelve months to December 2020).

So, Perma-Fix Environmental Services has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.7% average generated by the Commercial Services industry.

Check out our latest analysis for Perma-Fix Environmental Services

roce
roce

Historical performance is a great place to start when researching a stock so above you can see the gauge for Perma-Fix Environmental Services' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Perma-Fix Environmental Services, check out these free graphs here.

The Trend Of ROCE

We're pretty happy with how the ROCE has been trending at Perma-Fix Environmental Services. The figures show that over the last five years, returns on capital have grown by 373%. The company is now earning US$0.07 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 30% less capital than it was five years ago. Perma-Fix Environmental Services may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 42% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

In summary, it's great to see that Perma-Fix Environmental Services has been able to turn things around and earn higher returns on lower amounts of capital. And with a respectable 97% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for Perma-Fix Environmental Services you'll probably want to know about.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.