There's Been No Shortage Of Growth Recently For Byte Computer's (ATH:BYTE) Returns On Capital

By
Simply Wall St
Published
November 26, 2021
ATSE:BYTE
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Byte Computer (ATH:BYTE) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Byte Computer:

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

0.19 = €3.5m ÷ (€32m - €14m) (Based on the trailing twelve months to June 2021).

So, Byte Computer has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 14% it's much better.

View our latest analysis for Byte Computer

roce
ATSE:BYTE Return on Capital Employed November 27th 2021

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'd like to look at how Byte Computer has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Byte Computer's ROCE Trending?

Shareholders will be relieved that Byte Computer has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 19% on its capital. While returns have increased, the amount of capital employed by Byte Computer has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

On a separate but related note, it's important to know that Byte Computer has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Byte Computer's ROCE

To sum it up, Byte Computer is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 807% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Byte Computer can keep these trends up, it could have a bright future ahead.

Byte Computer does have some risks though, and we've spotted 1 warning sign for Byte Computer that you might be interested in.

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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.