Intense Technologies (NSE:INTENTECH) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Intense Technologies (NSE:INTENTECH), we don't think it's current trends fit the mold of a multi-bagger.

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 Intense Technologies is:

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

0.14 = ₹202m ÷ (₹1.8b - ₹311m) (Based on the trailing twelve months to September 2024).

Thus, Intense Technologies has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Software industry.

See our latest analysis for Intense Technologies

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Intense Technologies' past further, check out this free graph covering Intense Technologies' past earnings, revenue and cash flow.

What Does the ROCE Trend For Intense Technologies Tell Us?

When we looked at the ROCE trend at Intense Technologies, we didn't gain much confidence. To be more specific, ROCE has fallen from 20% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Intense Technologies' current liabilities have increased over the last five years to 17% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 14%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

Our Take On Intense Technologies' ROCE

While returns have fallen for Intense Technologies in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 271% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Intense Technologies does have some risks though, and we've spotted 1 warning sign for Intense Technologies that you might be interested in.

While Intense Technologies 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.