4 days ago
1Spatial (LON:SPA) Is Looking To Continue Growing Its Returns On Capital
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in 1Spatial's (LON:SPA) returns on capital, so let's have a look.
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Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for 1Spatial, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.054 = UK£1.4m ÷ (UK£41m - UK£16m) (Based on the trailing twelve months to January 2025).
Thus, 1Spatial has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the IT industry average of 19%.
Check out our latest analysis for 1Spatial
Above you can see how the current ROCE for 1Spatial 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 analyst report for 1Spatial .
What Can We Tell From 1Spatial's ROCE Trend?
1Spatial has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 5.4% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by 1Spatial has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
The Key Takeaway
To sum it up, 1Spatial is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 116% to shareholders over the last five years, it looks like investors are recognizing these changes. 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 1Spatial, we've discovered 3 warning signs that you should be aware of.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
