NICE (TLV:NICE) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, NICE (TLV:NICE) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for NICE, this is the formula:

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

0.087 = US$311m ÷ (US$4.6b - US$1.1b) (Based on the trailing twelve months to September 2022).

So, NICE has an ROCE of 8.7%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

See our latest analysis for NICE

In the above chart we have measured NICE's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering NICE here for free.

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 57%. So we're very much inspired by what we're seeing at NICE thanks to its ability to profitably reinvest capital.

What We Can Learn From NICE's ROCE

All in all, it's terrific to see that NICE is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 123% 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.

Like most companies, NICE does come with some risks, and we've found 1 warning sign that you should be aware of.

While NICE may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.