We Like These Underlying Return On Capital Trends At Bittium Oyj (HEL:BITTI)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in Bittium Oyj's (HEL:BITTI) returns on capital, so let's have a look.

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. The formula for this calculation on Bittium Oyj is:

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

0.029 = €3.9m ÷ (€165m - €29m) (Based on the trailing twelve months to June 2022).

So, Bittium Oyj has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Software industry average of 13%.

See our latest analysis for Bittium Oyj

In the above chart we have measured Bittium Oyj's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Bittium Oyj's ROCE Trending?

Shareholders will be relieved that Bittium Oyj has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.9% on its capital. While returns have increased, the amount of capital employed by Bittium Oyj has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

As discussed above, Bittium Oyj appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 40% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Bittium Oyj looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BITTI is currently trading for a fair price.

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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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.