There's Been No Shortage Of Growth Recently For Clean Seas Seafood's (ASX:CSS) Returns On Capital
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Clean Seas Seafood (ASX:CSS) and its trend of ROCE, we really liked what we saw.
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 Clean Seas Seafood, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = AU$9.1m ÷ (AU$99m - AU$15m) (Based on the trailing twelve months to June 2022).
Therefore, Clean Seas Seafood has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 5.0% it's much better.
See our latest analysis for Clean Seas Seafood
Above you can see how the current ROCE for Clean Seas Seafood 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 Clean Seas Seafood.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from Clean Seas Seafood. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 60%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Clean Seas Seafood has. Astute investors may have an opportunity here because the stock has declined 52% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you want to know some of the risks facing Clean Seas Seafood we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.
While Clean Seas Seafood isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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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