The Return Trends At Nodebis Applications (NGM:NODE) Look Promising

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Nodebis Applications' (NGM:NODE) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Nodebis Applications, this is the formula:

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

0.0068 = kr756k ÷ (kr157m - kr46m) (Based on the trailing twelve months to December 2024).

Therefore, Nodebis Applications has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the IT industry average of 12%.

Check out our latest analysis for Nodebis Applications

Above you can see how the current ROCE for Nodebis Applications compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nodebis Applications for free.

So How Is Nodebis Applications' ROCE Trending?

The fact that Nodebis Applications is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses three years ago, but now it's earning 0.7% which is a sight for sore eyes. In addition to that, Nodebis Applications is employing 132% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Nodebis Applications has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Nodebis Applications' ROCE

In summary, it's great to see that Nodebis Applications has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 22% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Nodebis Applications does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.