The Trend Of High Returns At One Software Technologies (TLV:ONE) Has Us Very Interested

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at the ROCE trend of One Software Technologies (TLV:ONE) we really liked what we saw.

Our free stock report includes 1 warning sign investors should be aware of before investing in One Software Technologies. Read for free now.

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. The formula for this calculation on One Software Technologies is:

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

0.33 = ₪327m ÷ (₪2.3b - ₪1.4b) (Based on the trailing twelve months to December 2024).

Therefore, One Software Technologies has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.

View our latest analysis for One Software Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for One Software Technologies' ROCE against it's prior returns. If you'd like to look at how One Software Technologies has performed in the past in other metrics, you can view this free graph of One Software Technologies' past earnings, revenue and cash flow.

What Can We Tell From One Software Technologies' ROCE Trend?

We like the trends that we're seeing from One Software Technologies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 33%. The amount of capital employed has increased too, by 78%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 58% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line On One Software Technologies' ROCE

To sum it up, One Software Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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 Software Technologies does have some risks though, and we've spotted 1 warning sign for One Software Technologies that you might be interested in.

One Software Technologies 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.