CyberOptics (NASDAQ:CYBE) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in CyberOptics' (NASDAQ:CYBE) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for CyberOptics:

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

0.19 = US$17m ÷ (US$103m - US$18m) (Based on the trailing twelve months to March 2022).

So, CyberOptics has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 14% it's much better.

Check out our latest analysis for CyberOptics

Above you can see how the current ROCE for CyberOptics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CyberOptics.

So How Is CyberOptics' ROCE Trending?

We like the trends that we're seeing from CyberOptics. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 71% more capital is being employed now too. So we're very much inspired by what we're seeing at CyberOptics thanks to its ability to profitably reinvest capital.

Our Take On CyberOptics' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what CyberOptics has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 91% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing CyberOptics that you might find interesting.

While CyberOptics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.