Returns On Capital Are Showing Encouraging Signs At Skyverse Technology (SHSE:688361)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So when we looked at Skyverse Technology (SHSE:688361) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Skyverse Technology, this is the formula:

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

0.0093 = CN¥24m ÷ (CN¥3.6b - CN¥990m) (Based on the trailing twelve months to March 2024).

Thus, Skyverse Technology has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 3.9%.

View our latest analysis for Skyverse Technology

In the above chart we have measured Skyverse Technology's 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 Skyverse Technology for free.

What The Trend Of ROCE Can Tell Us

The fact that Skyverse Technology is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 0.9% on its capital. Not only that, but the company is utilizing 1,667% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Skyverse Technology's ROCE

In summary, it's great to see that Skyverse Technology has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 26% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Skyverse Technology, we've discovered 1 warning sign that you should be aware of.

While Skyverse Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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