Cybrid Technologies (SHSE:603212) Is Reinvesting At Lower Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Cybrid Technologies (SHSE:603212) and its ROCE trend, we weren't exactly thrilled.

What Is 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. Analysts use this formula to calculate it for Cybrid Technologies:

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

0.038 = CN¥120m ÷ (CN¥5.1b - CN¥1.9b) (Based on the trailing twelve months to March 2024).

Therefore, Cybrid Technologies has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 4.9%.

View our latest analysis for Cybrid Technologies

In the above chart we have measured Cybrid Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Cybrid Technologies .

What Can We Tell From Cybrid Technologies' ROCE Trend?

When we looked at the ROCE trend at Cybrid Technologies, we didn't gain much confidence. To be more specific, ROCE has fallen from 16% over the last five years. However it looks like Cybrid Technologies might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Cybrid Technologies' ROCE

In summary, Cybrid Technologies is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 65% over the last three 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 Cybrid Technologies has the makings of a multi-bagger.

On a final note, we've found 1 warning sign for Cybrid Technologies that we think you should be aware of.

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.

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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.