Returns Are Gaining Momentum At Beta Systems Software (FRA:BSS)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Beta Systems Software's (FRA:BSS) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Beta Systems Software:

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

0.15 = €12m ÷ (€106m - €25m) (Based on the trailing twelve months to September 2020).

Thus, Beta Systems Software has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 13% generated by the Software industry.

See our latest analysis for Beta Systems Software

Historical performance is a great place to start when researching a stock so above you can see the gauge for Beta Systems Software's ROCE against it's prior returns. If you're interested in investigating Beta Systems Software's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Beta Systems Software Tell Us?

Beta Systems Software is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 117%. So we're very much inspired by what we're seeing at Beta Systems Software thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 23%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Beta Systems Software's ROCE

All in all, it's terrific to see that Beta Systems Software is reaping the rewards from prior investments and is growing its capital base. And a remarkable 187% 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 Beta Systems Software looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BSS is currently trading for a fair price.

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. 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.
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