Vincit Oyj (HEL:VINCIT) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Vincit Oyj (HEL:VINCIT), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Vincit Oyj:

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

0.075 = €3.1m ÷ (€62m - €20m) (Based on the trailing twelve months to December 2022).

Therefore, Vincit Oyj has an ROCE of 7.5%. Ultimately, that's a low return and it under-performs the Software industry average of 22%.

See our latest analysis for Vincit Oyj

Above you can see how the current ROCE for Vincit 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.

SWOT Analysis for Vincit Oyj

What Can We Tell From Vincit Oyj's ROCE Trend?

When we looked at the ROCE trend at Vincit Oyj, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.5% from 24% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Vincit Oyj's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Vincit Oyj. However, despite the promising trends, the stock has fallen 37% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 4 warning signs with Vincit Oyj (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Vincit 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.