Returns Are Gaining Momentum At C-Rad (STO:CRAD B)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Speaking of which, we noticed some great changes in C-Rad's (STO:CRAD B) returns on capital, so let's have a look.

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)

0.15 = kr37m ÷ (kr307m - kr69m) (Based on the trailing twelve months to December 2021).

Therefore, C-Rad has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 7.2% it's much better.

Check out our latest analysis for C-Rad

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

C-Rad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 15% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, C-Rad is utilizing 186% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

Long story short, we're delighted to see that C-Rad's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 129% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While C-Rad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.