Why We Like The Returns At CyberTech Systems and Software (NSE:CYBERTECH)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at CyberTech Systems and Software's (NSE:CYBERTECH) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on CyberTech Systems and Software is:

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

0.26 = ₹265m ÷ (₹1.3b - ₹292m) (Based on the trailing twelve months to June 2020).

Thus, CyberTech Systems and Software has an ROCE of 26%. In absolute terms that's a great return and it's even better than the IT industry average of 13%.

Check out our latest analysis for CyberTech Systems and Software

Historical performance is a great place to start when researching a stock so above you can see the gauge for CyberTech Systems and Software's ROCE against it's prior returns. If you're interested in investigating CyberTech Systems and Software's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that CyberTech Systems and Software is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 26% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, CyberTech Systems and Software is utilizing 60% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On CyberTech Systems and Software's ROCE

Overall, CyberTech Systems and Software 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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 75% return over the last five years. In light of that, we think it's worth looking further into this stock because if CyberTech Systems and Software can keep these trends up, it could have a bright future ahead.

On a final note, we've found 4 warning signs for CyberTech Systems and Software that we think you should be aware of.

CyberTech Systems and Software is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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