C-Com Satellite Systems (CVE:CMI) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating C-Com Satellite Systems (CVE:CMI), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for C-Com Satellite Systems, this is the formula:

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

0.018 = CA$469k ÷ (CA$27m - CA$1.6m) (Based on the trailing twelve months to August 2022).

Therefore, C-Com Satellite Systems has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Communications industry average of 12%.

Check out our latest analysis for C-Com Satellite Systems

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

How Are Returns Trending?

When we looked at the ROCE trend at C-Com Satellite Systems, we didn't gain much confidence. To be more specific, ROCE has fallen from 6.7% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On C-Com Satellite Systems' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for C-Com Satellite Systems. These trends are starting to be recognized by investors since the stock has delivered a 14% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One final note, you should learn about the 5 warning signs we've spotted with C-Com Satellite Systems (including 1 which is concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.