Some Investors May Be Worried About Technoprobe's (BIT:TPRO) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Technoprobe (BIT:TPRO) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

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 Technoprobe is:

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

0.096 = €82m ÷ (€928m - €77m) (Based on the trailing twelve months to December 2023).

Thus, Technoprobe has an ROCE of 9.6%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 14%.

See our latest analysis for Technoprobe

Above you can see how the current ROCE for Technoprobe compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Technoprobe .

What Does the ROCE Trend For Technoprobe Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 30% four years ago, while the business's capital employed increased by 245%. Usually this isn't ideal, but given Technoprobe conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Technoprobe might not have received a full period of earnings contribution from it.

Our Take On Technoprobe's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Technoprobe have fallen, meanwhile the business is employing more capital than it was four years ago. Yet despite these concerning fundamentals, the stock has performed strongly with a 13% return over the last year, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to know some of the risks facing Technoprobe we've found 2 warning signs (1 is a bit 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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com