Returns On Capital At Bittium Oyj (HEL:BITTI) Have Hit The Brakes

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. In light of that, when we looked at Bittium Oyj (HEL:BITTI) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. The formula for this calculation on Bittium Oyj is:

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

0.015 = €2.0m ÷ (€158m - €22m) (Based on the trailing twelve months to December 2020).

Therefore, Bittium Oyj has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Software industry average of 15%.

Check out our latest analysis for Bittium Oyj

Above you can see how the current ROCE for Bittium Oyj 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 Bittium Oyj.

So How Is Bittium Oyj's ROCE Trending?

There hasn't been much to report for Bittium Oyj's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Bittium Oyj doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Bittium Oyj has been paying out 63% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line On Bittium Oyj's ROCE

We can conclude that in regards to Bittium Oyj's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 30% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing to note, we've identified 1 warning sign with Bittium Oyj and understanding it should be part of your investment process.

While Bittium Oyj 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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