Under The Bonnet, Primoco UAV's (SEP:PRIUA) Returns Look Impressive

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. And in light of that, the trends we're seeing at Primoco UAV's (SEP:PRIUA) look very promising so lets take a look.

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. To calculate this metric for Primoco UAV, this is the formula:

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

0.33 = Kč77m ÷ (Kč326m - Kč92m) (Based on the trailing twelve months to June 2023).

So, Primoco UAV has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 11%.

Check out our latest analysis for Primoco UAV

Historical performance is a great place to start when researching a stock so above you can see the gauge for Primoco UAV's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Primoco UAV, check out these free graphs here.

What Does the ROCE Trend For Primoco UAV Tell Us?

Primoco UAV has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 33% on its capital. Not only that, but the company is utilizing 398% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 28% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line

Long story short, we're delighted to see that Primoco UAV's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for Primoco UAV you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.