What Do The Returns On Capital At Cyberoo (BIT:CYB) Tell Us?

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Cyberoo (BIT:CYB), we don't think it's current trends fit the mold of a multi-bagger.

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 Cyberoo is:

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

0.079 = €1.1m ÷ (€17m - €3.6m) (Based on the trailing twelve months to June 2020).

Thus, Cyberoo has an ROCE of 7.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.9%.

View our latest analysis for Cyberoo

In the above chart we have measured Cyberoo's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cyberoo here for free.

What Can We Tell From Cyberoo's ROCE Trend?

The returns on capital haven't changed much for Cyberoo in recent years. Over the past one year, ROCE has remained relatively flat at around 7.9% and the business has deployed 56% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, Cyberoo has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 2.2% over the last year, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know about the risks facing Cyberoo, we've discovered 2 warning signs that you should be aware of.

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. 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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