STS Group’s (ETR:SF3) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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, STS Group (ETR:SF3) looks quite promising in regards to its trends of return on capital.

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For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for STS Group:

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

0.049 = €5.1m ÷ (€220m – €116m) (Based on the trailing twelve months to June 2025).

So, STS Group has an ROCE of 4.9%. In absolute terms, that’s a low return and it also under-performs the Machinery industry average of 9.4%.

Check out our latest analysis for STS Group

In the above chart we have measured STS Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for STS Group .

STS Group has broken into the black (profitability) and we’re sure it’s a sight for sore eyes. The company now earns 4.9% on its capital, because five years ago it was incurring losses. On top of that, what’s interesting is that the amount of capital being employed has remained steady, so the business hasn’t needed to put any additional money to work to generate these higher returns. So while we’re happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

On a separate but related note, it’s important to know that STS Group has a current liabilities to total assets ratio of 52%, which we’d consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we’d like to see this reduce as that would mean fewer obligations bearing risks.

To bring it all together, STS Group has done well to increase the returns it’s generating from its capital employed. And since the stock has fallen 27% over the last five years, there might be an opportunity here. That being the case, research into the company’s current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for STS Group (1 can’t be ignored) 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.

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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.