Should You Worry About Kape Technologies Plc’s (LON:KAPE) ROCE?

Simply Wall St.2020-06-17

Today we'll look at Kape Technologies Plc (LON:KAPE) and reflect on its potential as an investment. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight ...

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In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight ...</p>\n\n<a href=\"https://finance.yahoo.com/news/worry-kape-technologies-plc-lon-080112731.html\">网页链接</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"KAP.UK","symbol_name":"JOINT STOCK COMPANY NATIONAL ATOMIC COMPANY KAZATOMPROM","start_time":0,"source_url":"https://finance.yahoo.com/news/worry-kape-technologies-plc-lon-080112731.html","article_id":"2044087328","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/p9AmAMKjf.qGqvNo1JBhgQ--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/587bca1ec4acb3634ab3a458c085a4fc"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2044087328","pubTimestamp":1592380872,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Today we'll look at Kape Technologies Plc (LON:KAPE) and reflect on its potential as an investment. ","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"KAP.UK":"JOINT STOCK COMPANY NATIONAL ATOMIC COMPANY KAZATOMPROM"},"translate_title":"你应该担心Kape Technologies PLC（Lon:Kape）的Roce吗？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"KAP.UK":1,"KAPE.UK":1,"CSSDF":0.9},"content_text":"Today we'll look at Kape Technologies Plc (LON:KAPE) and reflect on its potential as an investment. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.First, we'll go over how we calculate ROCE. Second, we'll look at its ROCE compared to similar companies. Then we'll determine how its current liabilities are affecting its ROCE.Understanding Return On Capital Employed (ROCE)ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. In general, businesses with a higher ROCE are usually better quality. In brief, it is a useful tool, but it is not without drawbacks. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that 'one dollar invested in the company generates value of more than one dollar'.So, How Do We Calculate ROCE?Analysts use this formula to calculate return on capital employed:Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)Or for Kape Technologies:0.033 = US$6.6m ÷ (US$295m - US$95m) (Based on the trailing twelve months to December 2019.)So, Kape Technologies has an ROCE of 3.3%.  See our latest analysis for Kape Technologies Is Kape Technologies's ROCE Good?ROCE is commonly used for comparing the performance of similar businesses. In this analysis, Kape Technologies's ROCE appears meaningfully below the 9.5% average reported by the Software industry. This could be seen as a negative, as it suggests some competitors may be employing their capital more efficiently. Independently of how Kape Technologies compares to its industry, its ROCE in absolute terms is low; especially compared to the ~1.2% available in government bonds. It is likely that there are more attractive prospects out there.Kape Technologies delivered an ROCE of 3.3%, which is better than 3 years ago, as was making losses back then. This makes us wonder if the company is improving. You can see in the image below how Kape Technologies's ROCE compares to its industry. Click to see more on past growth.When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.Do Kape Technologies's Current Liabilities Skew Its ROCE?Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they need to be paid within 12 months. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To counter this, investors can check if a company has high current liabilities relative to total assets.Kape Technologies has current liabilities of US$95m and total assets of US$295m. Therefore its current liabilities are equivalent to approximately 32% of its total assets. With a medium level of current liabilities boosting the ROCE a little, Kape Technologies's low ROCE is unappealing.Our Take On Kape Technologies's ROCESo researching other companies may be a better use of your time. Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20. If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.This article by Simply Wall St is general in nature. 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. Thank you for reading.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2044087328"}