Returns Are Gaining Momentum At Kraken Robotics (CVE:PNG)
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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in Kraken Robotics' (CVE:PNG) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Kraken Robotics, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.053 = CA$1.7m ÷ (CA$65m - CA$33m) (Based on the trailing twelve months to September 2022).
Therefore, Kraken Robotics has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 7.6%.
See our latest analysis for Kraken Robotics
In the above chart we have measured Kraken Robotics' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Kraken Robotics here for free.
What Can We Tell From Kraken Robotics' ROCE Trend?
The fact that Kraken Robotics 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 5.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Kraken Robotics is utilizing 2,951% 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.
On a related note, the company's ratio of current liabilities to total assets has decreased to 50%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.
The Bottom Line On Kraken Robotics' ROCE
Long story short, we're delighted to see that Kraken Robotics' reinvestment activities have paid off and the company is now profitable. And a remarkable 209% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to continue researching Kraken Robotics, you might be interested to know about the 3 warning signs that our analysis has discovered.
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.
Kraken Robotics Inc., a marine technology company, engages in the design, manufacture, and sale of software-centric sensors, batteries, and underwater robotic systems for unmanned underwater vehicles used in military and commercial applications.
High growth potential and good value.