Returns At Clever Global (BME:CLE) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Clever Global's (BME:CLE) 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. To calculate this metric for Clever Global, this is the formula:

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

0.10 = €1.0m ÷ (€15m - €4.7m) (Based on the trailing twelve months to June 2022).

Thus, Clever Global has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Professional Services industry average it falls behind.

View our latest analysis for Clever Global

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Clever Global's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Clever Global has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 6,687%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Clever Global appears to been achieving more with less, since the business is using 36% less capital to run its operation. Clever Global may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Clever Global's ROCE

In a nutshell, we're pleased to see that Clever Global has been able to generate higher returns from less capital. However the stock is down a substantial 87% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

Clever Global does have some risks though, and we've spotted 2 warning signs for Clever Global that you might be interested in.

While Clever Global isn't earning the highest return, check out this free list of companies that are 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.