Why The 29% Return On Capital At Intense Technologies (NSE:INTENTECH) Should Have Your Attention

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of Intense Technologies (NSE:INTENTECH) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Intense Technologies, this is the formula:

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

0.29 = ₹263m ÷ (₹951m - ₹51m) (Based on the trailing twelve months to December 2021).

Thus, Intense Technologies has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Software industry average of 12%.

Check out our latest analysis for Intense Technologies

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

The Trend Of ROCE

Intense Technologies has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 29% on its capital. And unsurprisingly, like most companies trying to break into the black, Intense Technologies is utilizing 98% more capital than it was five years ago. 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 5.4%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Intense Technologies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Intense Technologies' ROCE

To the delight of most shareholders, Intense Technologies has now broken into profitability. Given the stock has declined 45% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Intense Technologies does have some risks though, and we've spotted 3 warning signs for Intense Technologies that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.