Software Service (TSE:3733) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Software Service's (TSE:3733) trend of ROCE, we liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Software Service is:

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

0.18 = JP¥6.6b ÷ (JP¥43b - JP¥5.7b) (Based on the trailing twelve months to January 2025).

So, Software Service has an ROCE of 18%. That's a pretty standard return and it's in line with the industry average of 18%.

View our latest analysis for Software Service

Above you can see how the current ROCE for Software Service 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 analyst report for Software Service .

So How Is Software Service's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past four years, ROCE has remained relatively flat at around 18% and the business has deployed 55% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Software Service has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Software Service's ROCE

To sum it up, Software Service has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 32% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

While Software Service doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 3733 on our platform.

While Software Service isn't earning the highest return, check out this free list of companies that are 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.