Yahoo Finance Will the Promising Trends At People Infrastructure (ASX:PPE) Continue?
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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, People Infrastructure (ASX:PPE) 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 People Infrastructure, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = AU$21m ÷ (AU$168m - AU$43m) (Based on the trailing twelve months to June 2020).
Thus, People Infrastructure has an ROCE of 17%. By itself that's a normal return on capital and it's in line with the industry's average returns of 17%.
See our latest analysis for People Infrastructure
Above you can see how the current ROCE for People Infrastructure 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.
What Can We Tell From People Infrastructure's ROCE Trend?
The trends we've noticed at People Infrastructure are quite reassuring. Over the last three years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 375%. So we're very much inspired by what we're seeing at People Infrastructure thanks to its ability to profitably reinvest capital.
On a related note, the company's ratio of current liabilities to total assets has decreased to 26%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
In Conclusion...
All in all, it's terrific to see that People Infrastructure is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know about the risks facing People Infrastructure, we've discovered 2 warning signs that you should be aware of.
While People Infrastructure isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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