Crypto Blockchain Industries (EPA:ALCBI) May Have Issues Allocating Its Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Although, when we looked at Crypto Blockchain Industries (EPA:ALCBI), it didn't seem to tick all of these boxes.

Understanding 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 Crypto Blockchain Industries is:

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

0.058 = €1.5m ÷ (€28m - €2.5m) (Based on the trailing twelve months to March 2023).

So, Crypto Blockchain Industries has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Software industry average of 11%.

View our latest analysis for Crypto Blockchain Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Crypto Blockchain Industries' ROCE against it's prior returns. If you'd like to look at how Crypto Blockchain Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We weren't thrilled with the trend because Crypto Blockchain Industries' ROCE has reduced by 85% over the last four years, while the business employed 2,805% more capital. Usually this isn't ideal, but given Crypto Blockchain Industries conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Crypto Blockchain Industries' earnings and if they change as a result from the capital raise.

The Bottom Line On Crypto Blockchain Industries' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Crypto Blockchain Industries. These growth trends haven't led to growth returns though, since the stock has fallen 50% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you'd like to know about the risks facing Crypto Blockchain Industries, we've discovered 3 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.