Returns On Capital Are A Standout For Cyber Power Systems (TWSE:3617)

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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Cyber Power Systems' (TWSE:3617) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Cyber Power Systems, this is the formula:

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

0.22 = NT$1.8b ÷ (NT$13b - NT$4.6b) (Based on the trailing twelve months to December 2023).

Thus, Cyber Power Systems has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 6.8% earned by companies in a similar industry.

View our latest analysis for Cyber Power Systems

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cyber Power Systems' ROCE against it's prior returns. If you're interested in investigating Cyber Power Systems' past further, check out this free graph covering Cyber Power Systems' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Cyber Power Systems are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. Basically the business is earning more per dollar of capital invested and in addition to that, 58% more capital is being employed now too. So we're very much inspired by what we're seeing at Cyber Power Systems thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Cyber Power Systems is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 307% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 3 warning signs with Cyber Power Systems and understanding these should be part of your investment process.

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.