NetSol Technologies (NASDAQ:NTWK) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So on that note, NetSol Technologies (NASDAQ:NTWK) looks quite promising in regards to its trends of return on capital.

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Understanding 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. To calculate this metric for NetSol Technologies, this is the formula:

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

0.028 = US$1.1m ÷ (US$58m - US$19m) (Based on the trailing twelve months to March 2025).

So, NetSol Technologies has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.7%.

See our latest analysis for NetSol Technologies

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how NetSol Technologies has performed in the past in other metrics, you can view this free graph of NetSol Technologies' past earnings, revenue and cash flow.

How Are Returns Trending?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. We found that the returns on capital employed over the last five years have risen by 118%. The company is now earning US$0.03 per dollar of capital employed. In regards to capital employed, NetSol Technologies appears to been achieving more with less, since the business is using 40% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line On NetSol Technologies' ROCE

In the end, NetSol Technologies has proven it's capital allocation skills are good with those higher returns from less amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 26% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

NetSol Technologies does have some risks though, and we've spotted 1 warning sign for NetSol Technologies that you might be interested in.

While NetSol Technologies 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.