The Trend Of High Returns At Datalab Tehnologije d.d (LJSE:DATG) Has Us Very Interested

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Datalab Tehnologije d.d's (LJSE:DATG) 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. To calculate this metric for Datalab Tehnologije d.d, this is the formula:

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

0.24 = €3.0m ÷ (€18m - €5.3m) (Based on the trailing twelve months to December 2020).

So, Datalab Tehnologije d.d has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Datalab Tehnologije d.d

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

The Trend Of ROCE

The fact that Datalab Tehnologije d.d is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 24% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Datalab Tehnologije d.d is utilizing 30% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Datalab Tehnologije d.d's ROCE

In summary, it's great to see that Datalab Tehnologije d.d has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 3 warning signs we've spotted with Datalab Tehnologije d.d (including 1 which is potentially serious) .

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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