We Like These Underlying Return On Capital Trends At CeoTronics (FRA:CEK)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at CeoTronics (FRA:CEK) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for CeoTronics:

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

0.14 = €3.3m ÷ (€28m - €5.1m) (Based on the trailing twelve months to November 2021).

So, CeoTronics has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Communications industry average of 11% it's much better.

Check out our latest analysis for CeoTronics

Above you can see how the current ROCE for CeoTronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CeoTronics.

The Trend Of ROCE

We like the trends that we're seeing from CeoTronics. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 64%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On CeoTronics' ROCE

In summary, it's great to see that CeoTronics can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 110% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 4 warning signs with CeoTronics and understanding them should be part of your investment process.

While CeoTronics 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.