Returns On Capital Signal Tricky Times Ahead For Convergenze. Società Benefit (BIT:CVG)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. In light of that, when we looked at Convergenze. Società Benefit (BIT:CVG) and its ROCE trend, we weren't exactly thrilled.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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 Convergenze. Società Benefit, this is the formula:

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

0.17 = €2.2m ÷ (€21m - €8.0m) (Based on the trailing twelve months to December 2024).

So, Convergenze. Società Benefit has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Telecom industry.

See our latest analysis for Convergenze. Società Benefit

In the above chart we have measured Convergenze. Società Benefit's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Convergenze. Società Benefit .

The Trend Of ROCE

In terms of Convergenze. Società Benefit's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 28% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, Convergenze. Società Benefit has done well to pay down its current liabilities to 38% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Convergenze. Società Benefit's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Convergenze. Società Benefit. And there could be an opportunity here if other metrics look good too, because the stock has declined 31% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Convergenze. Società Benefit, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Convergenze. Società Benefit isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.