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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at CSP (NASDAQ:CSPI) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on CSP is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0032 = US$163k ÷ (US$67m - US$17m) (Based on the trailing twelve months to December 2023).
Therefore, CSP has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the IT industry average of 12%.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of CSP.
What Does the ROCE Trend For CSP Tell Us?
We're delighted to see that CSP is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.3% on its capital. In addition to that, CSP is employing 24% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
Our Take On CSP's ROCE
Overall, CSP gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to know some of the risks facing CSP we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
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) simplywallst.com. 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.
極めて成長の可能性が高いビジネスを見つけるのは簡単ではありませんが、いくつかの主要な財務指標を見ていけば可能です。まず第一に、資本雇用収益率(ROCE)が増加している企業を特定する必要があります。そしてそれと一緒に、資本雇用基盤に絶えず増加がある企業が望ましいです。これが見られる場合、それは通常、素晴らしいビジネスモデルを持ち、利益の再投資機会が豊富な企業です。しかし、数字を簡単に確認した後、インテュイット(NASDAQ:INTU)が今後マルチバッガーの素質を持っていないと考えていますが、なぜそうなのか見てみましょう。資本利回り (ROCE)とは何ですか?わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。利益を増やし続けているビジネスであることを証明するには、利益をより高い割合で再投資している必要があります。NYSE:HD Return on Capital Employed 2024年4月10日それにより、ビジネスは利益を再投資して収益率を上げています。ナスダックのCSP(NASDAQ:CSPI)について、有望なトレンドがいくつか見られます。