Returns On Capital At Caribbean Utilities Company (TSE:CUP.U) Have Hit The Brakes
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Caribbean Utilities Company (TSE:CUP.U), we don't think it's current trends fit the mold of a multi-bagger.
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. Analysts use this formula to calculate it for Caribbean Utilities Company:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = US$37m ÷ (US$767m - US$121m) (Based on the trailing twelve months to September 2023).
Therefore, Caribbean Utilities Company has an ROCE of 5.8%. In absolute terms, that's a low return, but it's much better than the Electric Utilities industry average of 4.6%.
Check out our latest analysis for Caribbean Utilities Company
Above you can see how the current ROCE for Caribbean Utilities Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Caribbean Utilities Company's ROCE Trend?
There are better returns on capital out there than what we're seeing at Caribbean Utilities Company. Over the past five years, ROCE has remained relatively flat at around 5.8% and the business has deployed 36% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
In Conclusion...
In conclusion, Caribbean Utilities Company has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
If you'd like to know more about Caribbean Utilities Company, we've spotted 2 warning signs, and 1 of them can't be ignored.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
