Returns on Capital Paint A Bright Future For 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in WiseTech Global's (ASX:WTC) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.20 = AU$309m ÷ (AU$1.8b - AU$250m) (Based on the trailing twelve months to December 2022).

Thus, WiseTech Global has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Software industry average of 12%.

Check out our latest analysis for WiseTech Global

Above you can see how the current ROCE for WiseTech Global compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering WiseTech Global here for free.

SWOT Analysis for WiseTech Global

What Can We Tell From WiseTech Global's ROCE Trend?

WiseTech Global is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 432%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On WiseTech Global's ROCE

In summary, it's great to see that WiseTech Global can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 381% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

While WiseTech Global looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WTC is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.