C-Rad (STO:CRAD B) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
July 02, 2021
OM:CRAD B
Source: Shutterstock

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at C-Rad (STO:CRAD B) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for C-Rad, this is the formula:

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

0.097 = kr20m ÷ (kr271m - kr63m) (Based on the trailing twelve months to December 2020).

Thus, C-Rad has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 10%.

Check out our latest analysis for C-Rad

roce
OM:CRAD B Return on Capital Employed July 3rd 2021

In the above chart we have measured C-Rad'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 C-Rad here for free.

What Can We Tell From C-Rad's ROCE Trend?

We're delighted to see that C-Rad is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 9.7% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, C-Rad is utilizing 291% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From C-Rad's ROCE

Overall, C-Rad gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a staggering 524% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

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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