A Look Into secunet Security Networks' (ETR:YSN) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at secunet Security Networks' (ETR:YSN) ROCE trend, we were very happy with what we saw.

Understanding 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. To calculate this metric for secunet Security Networks, this is the formula:

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

0.30 = €54m ÷ (€256m - €76m) (Based on the trailing twelve months to June 2022).

Thus, secunet Security Networks has an ROCE of 30%. In absolute terms that's a great return and it's even better than the IT industry average of 13%.

Check out our latest analysis for secunet Security Networks

Above you can see how the current ROCE for secunet Security Networks 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 secunet Security Networks here for free.

So How Is secunet Security Networks' ROCE Trending?

secunet Security Networks deserves to be commended in regards to it's returns. The company has employed 240% more capital in the last five years, and the returns on that capital have remained stable at 30%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If secunet Security Networks can keep this up, we'd be very optimistic about its future.

The Bottom Line On secunet Security Networks' ROCE

secunet Security Networks has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 162% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

secunet Security Networks does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.