Ceapro (CVE:CZO) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Ceapro (CVE:CZO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ceapro:

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

0.068 = CA$2.0m ÷ (CA$31m - CA$1.5m) (Based on the trailing twelve months to September 2021).

Therefore, Ceapro has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.4%.

View our latest analysis for Ceapro

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

So How Is Ceapro's ROCE Trending?

When we looked at the ROCE trend at Ceapro, we didn't gain much confidence. Around five years ago the returns on capital were 36%, but since then they've fallen to 6.8%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Ceapro is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 55% in the last five years. Therefore based on the analysis done in this article, we don't think Ceapro has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Ceapro (including 1 which can't be ignored) .

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.

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.

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