Veeva Systems (NYSE:VEEV) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Veeva Systems (NYSE:VEEV), it didn't seem to tick all of these boxes.

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

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 Veeva Systems, this is the formula:

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

0.11 = US$590m ÷ (US$6.3b - US$1.1b) (Based on the trailing twelve months to July 2024).

Thus, Veeva Systems has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.0% generated by the Healthcare Services industry.

View our latest analysis for Veeva Systems

Above you can see how the current ROCE for Veeva Systems 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 Veeva Systems for free.

The Trend Of ROCE

When we looked at the ROCE trend at Veeva Systems, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 11% from 18% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Veeva Systems' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Veeva Systems is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 49% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Veeva Systems could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for VEEV on our platform quite valuable.

While Veeva Systems 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.