Be Wary Of Quorum Information Technologies (CVE:QIS) And Its Returns On Capital – Yahoo Finance
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. However, after briefly looking over the numbers, we don’t think Quorum Information Technologies (CVE:QIS) has the makings of a multi-bagger going forward, but let’s have a look at why that may be.
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 Quorum Information Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.0038 = CA$171k ÷ (CA$48m – CA$3.9m) (Based on the trailing twelve months to June 2022).
Thus, Quorum Information Technologies has an ROCE of 0.4%. In absolute terms, that’s a low return and it also under-performs the Software industry average of 9.3%.
View our latest analysis for Quorum Information Technologies
In the above chart we have measured Quorum Information Technologies’ prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Quorum Information Technologies here for free.
When we looked at the ROCE trend at Quorum Information Technologies, we didn’t gain much confidence. Around five years ago the returns on capital were 3.0%, but since then they’ve fallen to 0.4%. 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. If these investments prove successful, this can bode very well for long term stock performance.
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Quorum Information Technologies. In light of this, the stock has only gained 7.7% over the last five years. Therefore we’d recommend looking further into this stock to confirm if it has the makings of a good investment.
Since virtually every company faces some risks, it’s worth knowing what they are, and we’ve spotted 2 warning signs for Quorum Information Technologies (of which 1 shouldn’t be ignored!) that you should know about.
While Quorum Information Technologies may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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.
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