There's Been No Shortage Of Growth Recently For Kraken Robotics' (CVE:PNG) Returns On Capital
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Kraken Robotics (CVE:PNG) so let's look a bit deeper.
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Return On Capital Employed (ROCE): What Is It?
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 Kraken Robotics, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CA$14m ÷ (CA$163m - CA$23m) (Based on the trailing twelve months to December 2024).
Therefore, Kraken Robotics has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.
View our latest analysis for Kraken Robotics
In the above chart we have measured Kraken Robotics' 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 Kraken Robotics .
So How Is Kraken Robotics' ROCE Trending?
Kraken Robotics 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 10% which is a sight for sore eyes. Not only that, but the company is utilizing 1,077% more capital than before, but that's to be expected from a company trying to break into profitability. 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.
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In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 14%, 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.