NASDAQ:KTOS) returns on capital, so let’s have a look.” data-reactid=”28″>Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Kratos Defense & Security Solutions’ (NASDAQ:KTOS) returns on capital, so let’s have a look.
Return On Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Kratos Defense & Security Solutions:
Check out our latest analysis for Kratos Defense & Security Solutions ” data-reactid=”38″> Check out our latest analysis for Kratos Defense & Security Solutions
report for Kratos Defense & Security Solutions.” data-reactid=”51″>Above you can see how the current ROCE for Kratos Defense & Security Solutions compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free report for Kratos Defense & Security Solutions.
What Does the ROCE Trend For Kratos Defense & Security Solutions Tell Us?
Kratos Defense & Security Solutions has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Kratos Defense & Security Solutions is utilizing 41% more capital than it was five years ago. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line
In summary, it’s great to see that Kratos Defense & Security Solutions has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
3 warning signs for Kratos Defense & Security Solutions that we think you should be aware of.” data-reactid=”56″>On a final note, we’ve found 3 warning signs for Kratos Defense & Security Solutions that we think you should be aware of.
list here.” data-reactid=”57″>While Kratos Defense & Security Solutions 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.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>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.
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