Returns Are Gaining Momentum At WiseTech Global (ASX:WTC)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at WiseTech Global (ASX:WTC) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for WiseTech Global, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.13 = AU$158m ÷ (AU$1.4b - AU$188m) (Based on the trailing twelve months to June 2021).

Therefore, WiseTech Global has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Software industry.

View our latest analysis for WiseTech Global

In the above chart we have measured WiseTech Global's 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 WiseTech Global here for free.

How Are Returns Trending?

We like the trends that we're seeing from WiseTech Global. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 478%. 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.

What We Can Learn From WiseTech Global's ROCE

All in all, it's terrific to see that WiseTech Global is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 828% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if WiseTech Global can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 3 warning signs for WiseTech Global you'll probably want to know about.

While WiseTech Global isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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