Yahoo Finance Corsair Gaming (NASDAQ:CRSR) Is Investing Its Capital With Increasing Efficiency
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. And in light of that, the trends we're seeing at Corsair Gaming's (NASDAQ:CRSR) look very promising so lets take a look.
What is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Corsair Gaming is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$175m ÷ (US$1.3b - US$476m) (Based on the trailing twelve months to September 2021).
Therefore, Corsair Gaming has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.
View our latest analysis for Corsair Gaming
Above you can see how the current ROCE for Corsair Gaming 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 Corsair Gaming.
The Trend Of ROCE
The trends we've noticed at Corsair Gaming are quite reassuring. Over the last four years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 89%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 35% of the business, which is more than it was four years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Bottom Line On Corsair Gaming's ROCE
All in all, it's terrific to see that Corsair Gaming is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 46% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
One more thing, we've spotted 2 warning signs facing Corsair Gaming that you might find interesting.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
