Vitec Software Group's (STO:VIT B) Returns Have Hit A Wall

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Vitec Software Group (STO:VIT B), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Vitec Software Group:

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

0.086 = kr654m ÷ (kr9.1b - kr1.5b) (Based on the trailing twelve months to September 2024).

So, Vitec Software Group has an ROCE of 8.6%. In absolute terms, that's a low return and it also under-performs the Software industry average of 17%.

See our latest analysis for Vitec Software Group

In the above chart we have measured Vitec Software Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Vitec Software Group for free.

So How Is Vitec Software Group's ROCE Trending?

The returns on capital haven't changed much for Vitec Software Group in recent years. The company has consistently earned 8.6% for the last five years, and the capital employed within the business has risen 410% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Vitec Software Group's ROCE

Long story short, while Vitec Software Group has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 162% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you're still interested in Vitec Software Group it's worth checking out our FREE intrinsic value approximation for VIT B to see if it's trading at an attractive price in other respects.

While Vitec Software Group 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.