Saunders International (ASX:SND) Is Very Good At Capital Allocation

editorial-team@simplywallst.com (Simply Wall St)

Wed, May 14, 2025, 2:46 PM 3 min read

If we privation to find a banal that could multiply implicit the agelong term, what are the underlying trends we should look for? Firstly, we'd privation to place a increasing return connected superior employed (ROCE) and past alongside that, an ever-increasing base of superior employed. This shows america that it's a compounding machine, capable to continually reinvest its net backmost into the concern and make higher returns. Speaking of which, we noticed immoderate large changes successful Saunders International's (ASX:SND) returns connected capital, truthful let's person a look.

We've discovered 3 informing signs astir Saunders International. View them for free.

For those who don't know, ROCE is simply a measurement of a company's yearly pre-tax nett (its return), comparative to the superior employed successful the business. Analysts usage this look to cipher it for Saunders International:

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

0.22 = AU$14m ÷ (AU$111m - AU$47m) (Based connected the trailing 12 months to December 2024).

Thus, Saunders International has an ROCE of 22%. That's a fantastic instrumentality and not lone that, it outpaces the mean of 17% earned by companies successful a akin industry.

View our latest investigation for Saunders International

While the past is not typical of the future, it tin beryllium adjuvant to cognize however a institution has performed historically, which is wherefore we person this illustration above. If you're funny successful investigating Saunders International's past further, cheque retired this free graph covering Saunders International's past earnings, gross and currency flow.

The information that Saunders International is present generating immoderate pre-tax profits from its anterior investments is precise encouraging. About 5 years agone the institution was generating losses but things person turned astir due to the fact that it's present earning 22% connected its capital. In summation to that, Saunders International is employing 175% much superior than antecedently which is expected of a institution that's trying to interruption into profitability. This tin archer america that the institution has plentifulness of reinvestment opportunities that are capable to make higher returns.

For the grounds though, determination was a noticeable summation successful the company's existent liabilities implicit the period, truthful we would property immoderate of the ROCE maturation to that. Effectively this means that suppliers oregon short-term creditors are present backing 42% of the business, which is much than it was 5 years ago. Given it's beauteous precocious ratio, we'd punctual investors that having existent liabilities astatine those levels tin bring astir immoderate risks successful definite businesses.