Capital returns show encouraging signs at Future Gaming Group International (NGM:FGG)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should be looking for? First, we would like to identify a growth come back on capital employed (ROCE) and at the same time, a base capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Speaking of which, we’ve noticed big changes in Future Gaming Group International (NGM: FGG) returns to capital, so let’s look.

What is return on capital employed (ROCE)?

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for Future Gaming Group International:

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

0.0046 = 871,000kr ÷ (201kr – 13mkr) (Based on the last twelve months to June 2022).

Thereby, Future Gaming Group International has a ROCE of 0.5%. Ultimately, it’s a poor performer and it underperforms the hotel industry average by 14%.

Check opportunities and risks within the SE hospitality industry.

NGM:FGG Return on Capital Employed November 17, 2022

Historical performance is a great starting point when researching a stock. So you can see Future Gaming Group International’s ROCE gauge above against its past returns. If you want to investigate more about Future Gaming Group International’s past, check out this free chart of past profits, revenue and cash flow.

So, what is the ROCE trend of Future Gaming Group International?

Future Gaming Group International recently achieved profitability, so its earlier investments appear to be paying off. Shareholders would no doubt rejoice because the company was loss-making five years ago but now generates 0.5% of its capital. Not only that, but the company is using 678% more capital than before, but that’s to be expected of a company trying to become profitable. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it continues, it can lead to multi-bagger performance.

One last thing to note, Future Gaming Group International has reduced current liabilities to 6.3% of total assets during this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Future Gaming Group International has increased its returns without depending on the increase in its current liabilities, which we are very pleased with.

What we can learn from Future Gaming Group International’s ROCE

In summary, it’s great to see that Future Gaming Group International has managed to become profitable and continues to reinvest in its business. However, the stock has fallen 97% in the past five years, so other areas of the business could hurt its prospects. Still, it’s worth doing some additional research to see if the trends will continue in the future.

If you want to know more about Future Gaming Group International, we spotted 4 warning signs, and 2 of them are significant.

For those who like to invest in solid companies, look at this free list of companies with strong balance sheets and high returns on equity.

Valuation is complex, but we help make it simple.

Find out if Future Gaming Group International is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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