Returns At Formula Systems (1985) (TLV:FORTY) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Formula Systems (1985)'s (TLV:FORTY) returns on capital, so let's have a look.

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What Is 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. To calculate this metric for Formula Systems (1985), this is the formula:

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

0.14 = US$276m ÷ (US$3.2b - US$1.2b) (Based on the trailing twelve months to June 2025).

So, Formula Systems (1985) has an ROCE of 14%. In isolation, that's a pretty standard return but against the IT industry average of 17%, it's not as good.

Check out our latest analysis for Formula Systems (1985)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Formula Systems (1985)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Formula Systems (1985).

What Does the ROCE Trend For Formula Systems (1985) Tell Us?

The trends we've noticed at Formula Systems (1985) are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 30%. So we're very much inspired by what we're seeing at Formula Systems (1985) thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Formula Systems (1985) 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 solid 71% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Formula Systems (1985) and understanding this should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.