Returns On Capital At Crypto Blockchain Industries (EPA:ALCBI) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. 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)

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 Crypto Blockchain Industries:

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

0.082 = €1.8m ÷ (€27m - €5.2m) (Based on the trailing twelve months to September 2023).

Thus, Crypto Blockchain Industries has an ROCE of 8.2%. Ultimately, that's a low return and it under-performs the Software industry average of 10%.

Check out our latest analysis for Crypto Blockchain Industries

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 want to delve into the historical earnings, revenue and cash flow of Crypto Blockchain Industries, check out these free graphs here.

What Can We Tell From Crypto Blockchain Industries' ROCE Trend?

Unfortunately, the trend isn't great with ROCE falling from 37% four years ago, while capital employed has grown 2,364%. That being said, Crypto Blockchain Industries raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Crypto Blockchain Industries probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Key Takeaway

We're a bit apprehensive about Crypto Blockchain Industries because despite more capital being deployed in the business, returns on that capital and sales have both fallen. It should come as no surprise then that the stock has fallen 69% over the last year, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to know some of the risks facing Crypto Blockchain Industries we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Crypto Blockchain Industries 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.