Returns Are Gaining Momentum At Hybrid Software Group (EBR:HYSG)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Hybrid Software Group (EBR:HYSG) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hybrid Software Group is:

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

0.022 = €2.9m ÷ (€148m - €17m) (Based on the trailing twelve months to June 2022).

So, Hybrid Software Group has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Software industry average of 11%.

Check out our latest analysis for Hybrid Software Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Hybrid Software Group, check out these free graphs here.

So How Is Hybrid Software Group's ROCE Trending?

Hybrid Software Group 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 2.2% on its capital. In addition to that, Hybrid Software Group is employing 442% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Hybrid Software Group's ROCE

To the delight of most shareholders, Hybrid Software Group has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 46% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Hybrid Software Group does have some risks though, and we've spotted 1 warning sign for Hybrid Software Group that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.