Returns At TeamViewer (ETR:TMV) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, we've noticed some promising trends at TeamViewer (ETR:TMV) so let's look a bit deeper.

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. Analysts use this formula to calculate it for TeamViewer:

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

0.099 = €120m ÷ (€1.5b - €337m) (Based on the trailing twelve months to December 2021).

Thus, TeamViewer has an ROCE of 9.9%. Ultimately, that's a low return and it under-performs the Software industry average of 13%.

Check out our latest analysis for TeamViewer

Above you can see how the current ROCE for TeamViewer 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 TeamViewer.

What The Trend Of ROCE Can Tell Us

TeamViewer has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 9.9% which is a sight for sore eyes. Not only that, but the company is utilizing 125% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 22%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that TeamViewer has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On TeamViewer's ROCE

To the delight of most shareholders, TeamViewer has now broken into profitability. And since the stock has fallen 67% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 2 warning signs facing TeamViewer that you might find interesting.

While TeamViewer may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.