Many Would Be Envious Of Oracle Financial Services Software's (NSE:OFSS) Excellent Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 ran our eye over Oracle Financial Services Software's (NSE:OFSS) trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Oracle Financial Services Software is:

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

0.39 = ₹31b ÷ (₹91b - ₹12b) (Based on the trailing twelve months to September 2024).

Therefore, Oracle Financial Services Software has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Software industry average of 13%.

Check out our latest analysis for Oracle Financial Services Software

In the above chart we have measured Oracle Financial Services Software's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Oracle Financial Services Software for free.

So How Is Oracle Financial Services Software's ROCE Trending?

We'd be pretty happy with returns on capital like Oracle Financial Services Software. The company has employed 33% more capital in the last five years, and the returns on that capital have remained stable at 39%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line On Oracle Financial Services Software's ROCE

In short, we'd argue Oracle Financial Services Software has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 423% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Oracle Financial Services Software does come with some risks, and we've found 2 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.