If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. First, we would like to identify a growth return on capital employed (ROCE) and in parallel, a based capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a dialing machine. With that in mind, we’ve noticed some promising trends at C-Rad (STO: CRAD B) so let’s look a little further.
What is Return on Employee Capital (ROCE)?
If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. To calculate this metric for C-Rad, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.097 = kr20m ÷ (kr271m – kr63m) (Based on the last twelve months up to December 2020).
So, C-Rad has a ROCE of 9.7%. On its own, this is a low return on capital, but it is in line with industry average returns of 10%.
Check out our latest analysis for C-Rad
In the graph above, we measured C-Rad’s past ROCE against its past performance, but the future is arguably more important. If you want, you can check out the analysts’ forecasts covering C-Rad here for free.
What can we say about C-Rad’s ROCE trend?
We are delighted to see that C-Rad is reaping the rewards of its investments and is now generating pre-tax profits. The company was making losses five years ago, but is now gaining 9.7%, which is a sight to behold. And unsurprisingly, like most companies trying to break into the dark, C-Rad is using 291% more capital than five years ago. This may tell us that the company has many reinvestment opportunities capable of generating higher returns.
What we can learn from C-Rad’s ROCE
All in all, C-Rad receives a big tick from us thanks in large part to the fact that he is now profitable and is reinvesting in his business. Given that the stock has returned 524% to shareholders over the past five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your while to check if these trends will continue.
On the other side of ROCE, we must consider valuation. This is why we have a FREE estimate of intrinsic value on our platform definitely worth checking out.
For those who like to invest in solid companies, Check it out free list of companies with strong balance sheets and high returns on equity.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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