U.S. markets open in 5 hours 47 minutes
  • S&P Futures

    4,156.25
    +24.00 (+0.58%)
     
  • Dow Futures

    34,163.00
    +15.00 (+0.04%)
     
  • Nasdaq Futures

    12,576.25
    +162.00 (+1.30%)
     
  • Russell 2000 Futures

    1,971.70
    +3.30 (+0.17%)
     
  • Crude Oil

    76.77
    +0.36 (+0.47%)
     
  • Gold

    1,972.80
    +30.00 (+1.54%)
     
  • Silver

    24.32
    +0.71 (+3.01%)
     
  • EUR/USD

    1.1004
    +0.0010 (+0.09%)
     
  • 10-Yr Bond

    3.3970
    0.0000 (0.00%)
     
  • Vix

    17.65
    -1.75 (-9.02%)
     
  • GBP/USD

    1.2373
    +0.0002 (+0.01%)
     
  • USD/JPY

    128.8000
    -0.1250 (-0.10%)
     
  • BTC-USD

    23,813.68
    +806.19 (+3.50%)
     
  • CMC Crypto 200

    543.34
    +300.66 (+123.89%)
     
  • FTSE 100

    7,792.82
    +31.71 (+0.41%)
     
  • Nikkei 225

    27,402.05
    +55.17 (+0.20%)
     

Ebang International Holdings (NASDAQ:EBON) Might Be Having Difficulty Using Its Capital Effectively

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Ebang International Holdings (NASDAQ:EBON) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Ebang International Holdings is:

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

0.0055 = US$2.0m ÷ (US$386m - US$15m) (Based on the trailing twelve months to December 2021).

Therefore, Ebang International Holdings has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Tech industry average of 10%.

Check out our latest analysis for Ebang International Holdings

roce
roce

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Ebang International Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Ebang International Holdings' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.5% from 5.7% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, Ebang International Holdings has decreased its current liabilities to 3.8% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Ebang International Holdings' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ebang International Holdings. But since the stock has dived 86% in the last year, there could be other drivers that are influencing the business' outlook. Therefore, we'd suggest researching the stock further to uncover more about the business.

If you'd like to know more about Ebang International Holdings, we've spotted 4 warning signs, and 1 of them can't be ignored.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here