Yahoo Finance Be Wary Of secunet Security Networks (ETR:YSN) And Its Returns On Capital
What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at secunet Security Networks (ETR:YSN), it didn't seem to tick all of these boxes.
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 secunet Security Networks:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = €40m ÷ (€329m - €113m) (Based on the trailing twelve months to December 2023).
So, secunet Security Networks has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.6% generated by the IT industry.
Check out our latest analysis for secunet Security Networks
In the above chart we have measured secunet Security Networks' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for secunet Security Networks .
What Can We Tell From secunet Security Networks' ROCE Trend?
In terms of secunet Security Networks' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 30%, but since then they've fallen to 19%. 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 secunet Security Networks' 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 secunet Security Networks. In light of this, the stock has only gained 29% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
secunet Security Networks could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for YSN on our platform quite valuable.
While secunet Security Networks 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.
