Yahoo Finance Returns On Capital At GDI Integrated Facility Services (TSE:GDI) Paint A Concerning Picture
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at GDI Integrated Facility Services (TSE:GDI) and its ROCE trend, we weren't exactly thrilled.
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. The formula for this calculation on GDI Integrated Facility Services is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = CA$43m ÷ (CA$1.3b - CA$483m) (Based on the trailing twelve months to March 2024).
Thus, GDI Integrated Facility Services has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.4%.
See our latest analysis for GDI Integrated Facility Services
Above you can see how the current ROCE for GDI Integrated Facility Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering GDI Integrated Facility Services for free.
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at GDI Integrated Facility Services doesn't inspire confidence. To be more specific, ROCE has fallen from 7.1% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On GDI Integrated Facility Services' ROCE
To conclude, we've found that GDI Integrated Facility Services is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
One more thing: We've identified 2 warning signs with GDI Integrated Facility Services (at least 1 which is a bit concerning) , and understanding them would certainly be useful.
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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