Technoprobe (BIT:TPRO) Might Be Having Difficulty Using Its Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Although, when we looked at Technoprobe (BIT:TPRO), it didn't seem to tick all of these boxes.

Understanding 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)

0.056 = €71m ÷ (€1.4b - €98m) (Based on the trailing twelve months to June 2024).

Therefore, Technoprobe has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 12%.

See our latest analysis for Technoprobe

In the above chart we have measured Technoprobe's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Technoprobe .

The Trend Of ROCE

We weren't thrilled with the trend because Technoprobe's ROCE has reduced by 85% over the last four years, while the business employed 337% more capital. 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.

On a related note, Technoprobe has decreased its current liabilities to 7.1% 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. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Technoprobe's ROCE

In summary, Technoprobe is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 18% in the last year. Therefore based on the analysis done in this article, we don't think Technoprobe has the makings of a multi-bagger.

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

While Technoprobe 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.