Investors Should Be Encouraged By Benefit Systems' (WSE:BFT) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Benefit Systems' (WSE:BFT) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Benefit Systems:

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

0.30 = zł628m ÷ (zł3.1b - zł1.0b) (Based on the trailing twelve months to September 2024).

Thus, Benefit Systems has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 20%.

View our latest analysis for Benefit Systems

In the above chart we have measured Benefit Systems' 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 Benefit Systems .

So How Is Benefit Systems' ROCE Trending?

We like the trends that we're seeing from Benefit Systems. Over the last five years, returns on capital employed have risen substantially to 30%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at Benefit Systems thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Benefit Systems is reaping the rewards from prior investments and is growing its capital base. And a remarkable 250% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Benefit Systems and understanding this should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.