Netcompany Group (CPH:NETC) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Netcompany Group (CPH:NETC) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Netcompany Group is:

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

0.13 = kr.737m ÷ (kr.7.0b - kr.1.4b) (Based on the trailing twelve months to March 2022).

Thus, Netcompany Group has an ROCE of 13%. In absolute terms, that's a pretty standard return but compared to the Software industry average it falls behind.

Check out our latest analysis for Netcompany Group

In the above chart we have measured Netcompany Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Netcompany Group here for free.

So How Is Netcompany Group's ROCE Trending?

The trends we've noticed at Netcompany Group are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 110% more capital is being employed now too. So we're very much inspired by what we're seeing at Netcompany Group thanks to its ability to profitably reinvest capital.

The Bottom Line On Netcompany Group's ROCE

All in all, it's terrific to see that Netcompany Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 71% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Netcompany Group can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Netcompany Group that we think you should be aware of.

While Netcompany Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.