Cyprus Trading (CSE:CTC) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Cyprus Trading (CSE:CTC) so let's look a bit deeper.

What Is 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. The formula for this calculation on Cyprus Trading is:

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

0.089 = €18m ÷ (€391m - €193m) (Based on the trailing twelve months to June 2023).

Thus, Cyprus Trading has an ROCE of 8.9%. On its own that's a low return, but compared to the average of 7.2% generated by the Retail Distributors industry, it's much better.

View our latest analysis for Cyprus Trading

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Cyprus Trading's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Cyprus Trading's ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at Cyprus Trading. We found that the returns on capital employed over the last five years have risen by 99%. The company is now earning €0.09 per dollar of capital employed. In regards to capital employed, Cyprus Trading appears to been achieving more with less, since the business is using 33% less capital to run its operation. Cyprus Trading may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 49% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Key Takeaway

From what we've seen above, Cyprus Trading has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 53% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 2 warning signs for Cyprus Trading (1 doesn't sit too well with us) you should be aware of.

While Cyprus Trading 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.