Returns On Capital Are Showing Encouraging Signs At FCS Software Solutions (NSE:FCSSOFT)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in FCS Software Solutions' (NSE:FCSSOFT) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for FCS Software Solutions, this is the formula:

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

0.0076 = ₹34m ÷ (₹4.8b - ₹332m) (Based on the trailing twelve months to June 2025).

Therefore, FCS Software Solutions has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the IT industry average of 17%.

Check out our latest analysis for FCS Software Solutions

Historical performance is a great place to start when researching a stock so above you can see the gauge for FCS Software Solutions' ROCE against it's prior returns. If you're interested in investigating FCS Software Solutions' past further, check out this free graph covering FCS Software Solutions' past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that FCS Software Solutions is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.8% on its capital. In addition to that, FCS Software Solutions is employing 35% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From FCS Software Solutions' ROCE

To the delight of most shareholders, FCS Software Solutions has now broken into profitability. And a remarkable 528% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

On a final note, we've found 2 warning signs for FCS Software Solutions that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.