Why You Should Care About Yubico's (STO:YUBICO) Strong Returns On Capital

What are the early trends we should look for to identify a stock that could 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Yubico (STO:YUBICO), we liked what we saw.

Understanding 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. The formula for this calculation on Yubico is:

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

0.30 = kr429m ÷ (kr2.0b - kr575m) (Based on the trailing twelve months to September 2024).

So, Yubico has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Software industry average of 17%.

See our latest analysis for Yubico

In the above chart we have measured Yubico'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 analyst report for Yubico .

The Trend Of ROCE

Yubico deserves to be commended in regards to it's returns. The company has consistently earned 30% for the last one year, and the capital employed within the business has risen 30% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Yubico can keep this up, we'd be very optimistic about its future.

Our Take On Yubico's ROCE

Yubico has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 168% return they've received over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Yubico (of which 1 can't be ignored!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.