If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 on that note, Globe International (ASX:GLB) looks quite promising in regards to its trends of return on capital.

Our free stock report includes 3 warning signs investors should be aware of before investing in Globe International. Read for free now.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Globe International:

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

0.18 = AU$17m ÷ (AU$131m - AU$36m) (Based on the trailing twelve months to December 2024).

Therefore, Globe International has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Luxury industry.

View our latest analysis for Globe International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Globe International's ROCE against it's prior returns. If you're interested in investigating Globe International's past further, check out this free graph covering Globe International's past earnings, revenue and cash flow.

What Can We Tell From Globe International's ROCE Trend?

Investors would be pleased with what's happening at Globe International. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 78%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that Globe International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 254% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Globe International does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.