Shareholders Would Enjoy A Repeat Of Asseco Business Solutions' (WSE:ABS) Recent Growth In Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Asseco Business Solutions' (WSE:ABS) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Asseco Business Solutions:

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

0.26 = zł98m ÷ (zł443m - zł65m) (Based on the trailing twelve months to September 2022).

Therefore, Asseco Business Solutions has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Software industry average of 13%.

View our latest analysis for Asseco Business Solutions

In the above chart we have measured Asseco Business Solutions' 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 Asseco Business Solutions.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Asseco Business Solutions. The data shows that returns on capital have increased substantially over the last five years to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 33%. So we're very much inspired by what we're seeing at Asseco Business Solutions thanks to its ability to profitably reinvest capital.

Our Take On Asseco Business Solutions' ROCE

All in all, it's terrific to see that Asseco Business Solutions is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 75% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Asseco Business Solutions, we've discovered 1 warning sign that you should be aware of.

Asseco Business Solutions is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.