The Returns On Capital At C-Com Satellite Systems (CVE:CMI) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at C-Com Satellite Systems (CVE:CMI) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for C-Com Satellite Systems:

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

0.018 = CA$469k ÷ (CA$27m - CA$1.6m) (Based on the trailing twelve months to August 2022).

Therefore, C-Com Satellite Systems has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 8.1%.

Check out our latest analysis for C-Com Satellite Systems

roce

Historical performance is a great place to start when researching a stock so above you can see the gauge for C-Com Satellite Systems' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of C-Com Satellite Systems, check out these free graphs here.

What Can We Tell From C-Com Satellite Systems' ROCE Trend?

In terms of C-Com Satellite Systems' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.7% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From C-Com Satellite Systems' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that C-Com Satellite Systems is reinvesting for growth and has higher sales as a result. These trends are starting to be recognized by investors since the stock has delivered a 3.8% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to know some of the risks facing C-Com Satellite Systems we've found 6 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While C-Com Satellite Systems 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.

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