Why Cambium Networks (NASDAQ: CMBM) 28% Return on Capital Should Get Your Attention
Did you know that certain financial measures can provide clues about a potential multi-bagger? In a perfect world, we would like a business to invest more capital in their business, and ideally the returns from that capital increase as well. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. Speaking of which, we have noticed some big changes in Cambium Networks’ (NASDAQ: CMBM) capital returns, so let’s take a look.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Cambium Networks is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.28 = US $ 42 million ÷ (US $ 219 million – US $ 70 million) (Based on the last twelve months up to September 2021).
Therefore, Cambium Networks has a ROCE of 28%. In absolute terms, this is an excellent performance and is even better than the communications industry average of 7.1%.
Consult our latest analysis for Cambium networks
In the graph above, we measured Cambium Networks past ROCE versus past performance, but the future is arguably more important. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.
The ROCE trend
We love the trends we see from Cambium Networks. Over the past four years, returns on capital employed have increased substantially to 28%. The amount of capital employed also increased by 113%. So we’re very inspired by what we’re seeing at Cambium Networks through its ability to reinvest capital profitably.
In another part of our analysis, we noticed that the ratio of the company’s current liabilities to total assets decreased to 32%, which means overall that the company relies less on its suppliers. or its short-term creditors to finance its operations. This tells us that Cambium Networks has increased its returns without being dependent on the increase in its current liabilities, which we are very pleased with.
Our opinion on Cambium Networks ROCE
In summary, it’s great to see that Cambium Networks can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. Savvy investors may have an opportunity here because the stock has fallen 11% in the past year. However, research into current valuation metrics and the company’s future prospects seems appropriate.
On a final note, we found 3 warning signs for Cambium networks (1 is a bit rude) you should be aware of.
High yields are a key ingredient to strong performance, so check out our free list of stocks generating high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.