Should You Be Impressed By Nexi's (BIT:NEXI) Returns on Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Nexi (BIT:NEXI), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Nexi is:

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

0.044 = €241m ÷ (€5.9b - €448m) (Based on the trailing twelve months to June 2020).

So, Nexi has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the IT industry average of 7.9%.

View our latest analysis for Nexi

Above you can see how the current ROCE for Nexi compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Nexi.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Nexi's returns and its level of capital employed because both metrics have been steady for the past three years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Nexi doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Nexi's ROCE

We can conclude that in regards to Nexi's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 55% over the last year. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you want to continue researching Nexi, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Nexi may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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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