The Trends At Sciuker Frames (BIT:SCK) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Sciuker Frames (BIT:SCK), it didn't seem to tick all of these boxes.

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

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 Sciuker Frames:

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

0.063 = €1.3m ÷ (€26m - €5.5m) (Based on the trailing twelve months to June 2020).

Thus, Sciuker Frames has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Building industry average of 10%.

Check out our latest analysis for Sciuker Frames

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sciuker Frames' ROCE against it's prior returns. If you'd like to look at how Sciuker Frames has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Sciuker Frames' ROCE Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 11% three years ago, while the business's capital employed increased by 129%. Usually this isn't ideal, but given Sciuker Frames conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Sciuker Frames' earnings and if they change as a result from the capital raise.

On a related note, Sciuker Frames has decreased its current liabilities to 21% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

In Conclusion...

We're a bit apprehensive about Sciuker Frames because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Since the stock has skyrocketed 173% over the last year, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to know some of the risks facing Sciuker Frames we've found 5 warning signs (2 are concerning!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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