We Like These Underlying Return On Capital Trends At Cerebra Integrated Technologies (NSE:CEREBRAINT)

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Cerebra Integrated Technologies' (NSE:CEREBRAINT) returns on capital, so let's have a look.

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

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

0.16 = ₹419m ÷ (₹4.3b - ₹1.7b) (Based on the trailing twelve months to March 2022).

Therefore, Cerebra Integrated Technologies has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Electronic industry.

View our latest analysis for Cerebra Integrated Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cerebra Integrated Technologies' ROCE against it's prior returns. If you'd like to look at how Cerebra Integrated Technologies has performed in the past in other metrics, you can view 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 16%. 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 45%. So we're very much inspired by what we're seeing at Cerebra Integrated Technologies thanks to its ability to profitably reinvest capital.

The Key Takeaway

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. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Cerebra Integrated Technologies does have some risks, we noticed 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.