Investors Could Be Concerned With u-blox Holding's (VTX:UBXN) Returns On Capital

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at u-blox Holding (VTX:UBXN) and its ROCE trend, we weren't exactly thrilled.

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

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. Analysts use this formula to calculate it for u-blox Holding:

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

0.016 = CHF6.6m ÷ (CHF502m - CHF84m) (Based on the trailing twelve months to June 2021).

Therefore, u-blox Holding has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.7%.

Check out our latest analysis for u-blox Holding

In the above chart we have measured u-blox Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for u-blox Holding.

How Are Returns Trending?

On the surface, the trend of ROCE at u-blox Holding doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 1.6%. 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On u-blox Holding's ROCE

To conclude, we've found that u-blox Holding is reinvesting in the business, but returns have been falling. Since the stock has declined 60% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think u-blox Holding has the makings of a multi-bagger.

If you're still interested in u-blox Holding it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While u-blox Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.