We Like Entersoft's (ATH:ENTER) Returns And Here's How They're Trending

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Entersoft's (ATH:ENTER) 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. The formula for this calculation on Entersoft is:

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

0.24 = €8.5m ÷ (€49m - €13m) (Based on the trailing twelve months to June 2023).

Thus, Entersoft has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Software industry average of 11%.

Check out our latest analysis for Entersoft

Historical performance is a great place to start when researching a stock so above you can see the gauge for Entersoft's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Entersoft, check out these free graphs here.

What Can We Tell From Entersoft's ROCE Trend?

The trends we've noticed at Entersoft are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 264% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Entersoft's ROCE

To sum it up, Entersoft has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 1,029% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.