The Returns On Capital At AROBS Transilvania Software (BVB:AROBS) Don't Inspire Confidence

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after briefly looking over the numbers, we don't think AROBS Transilvania Software (BVB:AROBS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on AROBS Transilvania Software is:

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

0.051 = RON28m ÷ (RON638m - RON100m) (Based on the trailing twelve months to September 2024).

Therefore, AROBS Transilvania Software has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the IT industry average of 13%.

View our latest analysis for AROBS Transilvania Software

Historical performance is a great place to start when researching a stock so above you can see the gauge for AROBS Transilvania Software's ROCE against it's prior returns. If you're interested in investigating AROBS Transilvania Software's past further, check out this free graph covering AROBS Transilvania Software's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Unfortunately, the trend isn't great with ROCE falling from 20% two years ago, while capital employed has grown 92%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence AROBS Transilvania Software might not have received a full period of earnings contribution from it.

In Conclusion...

In summary, AROBS Transilvania Software is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 23% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know about the risks facing AROBS Transilvania Software, we've discovered 2 warning signs that you should be aware of.

While AROBS Transilvania Software 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. 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.