Oracle Financial Services Software (NSE:OFSS) Is Investing Its Capital With Increasing Efficiency

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. 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, the ROCE of Oracle Financial Services Software (NSE:OFSS) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Oracle Financial Services Software, this is the formula:

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

0.39 = ₹24b ÷ (₹73b - ₹10b) (Based on the trailing twelve months to June 2021).

So, Oracle Financial Services Software has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See 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 to see what analysts are forecasting going forward, you should check out our free report for Oracle Financial Services Software.

What Does the ROCE Trend For Oracle Financial Services Software Tell Us?

Oracle Financial Services Software is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 39%. The amount of capital employed has increased too, by 22%. So we're very much inspired by what we're seeing at Oracle Financial Services Software thanks to its ability to profitably reinvest capital.

The Bottom Line On Oracle Financial Services Software's ROCE

To sum it up, Oracle Financial Services Software has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 82% return over the last five years. In light of that, we think it's worth looking further into this stock because if Oracle Financial Services Software can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Oracle Financial Services Software and understanding these should be part of your investment process.

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.

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.

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