Returns On Capital - An Important Metric For Byte Computer (ATH:BYTE)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 on that note, Byte Computer (ATH:BYTE) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Byte Computer, this is the formula:

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

0.099 = €1.7m ÷ (€30m - €13m) (Based on the trailing twelve months to June 2020).

Thus, Byte Computer has an ROCE of 9.9%. On its own, that's a low figure but it's around the 12% average generated by the IT industry.

View our latest analysis for Byte Computer

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 Byte Computer, check out these free graphs here.

The Trend Of ROCE

Byte Computer is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 93% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a separate but related note, it's important to know that Byte Computer has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

To bring it all together, Byte Computer has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 304% 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.

Like most companies, Byte Computer does come with some risks, and we've found 3 warning signs that you should be aware of.

While Byte Computer isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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