Returns On Capital Are A Standout For Qt Group Oyj (HEL:QTCOM)

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. And in light of that, the trends we're seeing at Qt Group Oyj's (HEL:QTCOM) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Qt Group Oyj:

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

0.26 = €37m ÷ (€178m - €36m) (Based on the trailing twelve months to December 2022).

Thus, Qt Group Oyj has an ROCE of 26%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

View our latest analysis for Qt Group Oyj

In the above chart we have measured Qt Group 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.

How Are Returns Trending?

Qt Group Oyj has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 26% which is a sight for sore eyes. In addition to that, Qt Group Oyj is employing 551% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Qt Group Oyj has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Qt Group Oyj has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Qt Group Oyj's ROCE

In summary, it's great to see that Qt Group Oyj has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Qt Group Oyj can keep these trends up, it could have a bright future ahead.

Qt Group Oyj does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.