Returns At Top Group Software (TLV:TOPG) Are On The Way Up

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Top Group Software (TLV:TOPG) so let's look a bit deeper.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Top Group Software:

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

0.19 = ₪28m ÷ (₪310m - ₪161m) (Based on the trailing twelve months to September 2025).

Thus, Top Group Software has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Software industry.

See our latest analysis for Top Group Software

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

How Are Returns Trending?

We like the trends that we're seeing from Top Group Software. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 111% more capital is being employed now too. So we're very much inspired by what we're seeing at Top Group Software thanks to its ability to profitably reinvest capital.

Another thing to note, Top Group Software has a high ratio of current liabilities to total assets of 52%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To sum it up, Top Group Software 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 261% 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, Top Group Software does come with some risks, and we've found 3 warning signs that you should be aware of.

While Top Group Software 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.