Investors Will Want Cerebra Integrated Technologies' (NSE:CEREBRAINT) Growth In ROCE To Persist

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Cerebra Integrated Technologies (NSE:CEREBRAINT) and its trend of ROCE, we really liked what we saw.

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

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. The formula for this calculation on Cerebra Integrated Technologies is:

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

0.10 = ₹330m ÷ (₹4.1b - ₹908m) (Based on the trailing twelve months to December 2021).

Thus, Cerebra Integrated Technologies has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.

View our latest analysis for Cerebra Integrated Technologies

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're interested in investigating Cerebra Integrated Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Cerebra Integrated Technologies' ROCE Trend?

Cerebra Integrated Technologies is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 10%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 85%. So we're very much inspired by what we're seeing at Cerebra Integrated Technologies thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 22%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Cerebra Integrated Technologies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Cerebra Integrated Technologies' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Cerebra Integrated Technologies has. And with a respectable 70% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Cerebra Integrated Technologies can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Cerebra Integrated Technologies we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Cerebra Integrated Technologies 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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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.