QuickBit eu (NGM:QBIT) Is Very Good At Capital Allocation

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. And in light of that, the trends we're seeing at QuickBit eu's (NGM:QBIT) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for QuickBit eu, this is the formula:

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

0.33 = kr64m ÷ (kr218m - kr28m) (Based on the trailing twelve months to December 2020).

Thus, QuickBit eu has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Software industry average of 14%.

Check out our latest analysis for QuickBit eu

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating QuickBit eu's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For QuickBit eu Tell Us?

We're delighted to see that QuickBit eu is reaping rewards from its investments and is now generating some pre-tax profits. About three years ago the company was generating losses but things have turned around because it's now earning 33% on its capital. And unsurprisingly, like most companies trying to break into the black, QuickBit eu is utilizing 5,058% more capital than it was three years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 13%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To the delight of most shareholders, QuickBit eu has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 37% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

QuickBit eu does have some risks, we noticed 5 warning signs (and 1 which can't be ignored) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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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