We Like Tecnotree Oyj's (HEL:TEM1V) Returns And Here's How They're Trending

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Tecnotree Oyj (HEL:TEM1V) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Tecnotree Oyj is:

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

0.22 = €18m ÷ (€98m - €16m) (Based on the trailing twelve months to September 2022).

So, Tecnotree Oyj has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Software industry average of 13%.

View our latest analysis for Tecnotree Oyj

Above you can see how the current ROCE for Tecnotree Oyj compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Tecnotree 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 22% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Tecnotree Oyj is utilizing 143% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 16%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Tecnotree Oyj has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Tecnotree Oyj's ROCE

Overall, Tecnotree Oyj gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting 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 Tecnotree Oyj can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Tecnotree Oyj, we've discovered 3 warning signs that you should be aware of.

Tecnotree Oyj is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.