The Return Trends At Crayon Group Holding (OB:CRAYN) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Crayon Group Holding (OB:CRAYN) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Crayon Group Holding is:

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

0.11 = kr569m ÷ (kr14b - kr9.2b) (Based on the trailing twelve months to September 2023).

Therefore, Crayon Group Holding has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Software industry.

View our latest analysis for Crayon Group Holding

Above you can see how the current ROCE for Crayon Group Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Crayon Group Holding here for free.

What Can We Tell From Crayon Group Holding's ROCE Trend?

We like the trends that we're seeing from Crayon Group Holding. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 400%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, Crayon Group Holding has a high ratio of current liabilities to total assets of 64%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Crayon Group Holding's ROCE

To sum it up, Crayon Group Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 314% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Crayon Group Holding can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Crayon Group Holding (including 1 which is concerning) .

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.