Investors Shouldn't Overlook GFT Technologies' (ETR:GFT) Impressive Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at GFT Technologies' (ETR:GFT) look very promising so lets take a look.

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. Analysts use this formula to calculate it for GFT Technologies:

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

0.20 = €66m ÷ (€545m - €217m) (Based on the trailing twelve months to September 2023).

Thus, GFT Technologies has an ROCE of 20%. In absolute terms that's a great return and it's even better than the IT industry average of 11%.

View our latest analysis for GFT Technologies

In the above chart we have measured GFT Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at GFT Technologies. Over the last five years, returns on capital employed have risen substantially to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 34% more capital is being employed now too. So we're very much inspired by what we're seeing at GFT Technologies thanks to its ability to profitably reinvest capital.

What We Can Learn From GFT Technologies' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what GFT Technologies has. And a remarkable 416% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

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.