PTC (NASDAQ:PTC) Is Looking To Continue Growing Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. So on that note, PTC (NASDAQ:PTC) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on PTC is:

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

0.11 = US$533m ÷ (US$6.2b - US$1.5b) (Based on the trailing twelve months to March 2024).

Therefore, PTC has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Software industry.

See our latest analysis for PTC

Above you can see how the current ROCE for PTC 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 PTC for free.

How Are Returns Trending?

PTC is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 122%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what PTC has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 95% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching PTC, you might be interested to know about the 2 warning signs that our analysis has discovered.

While PTC 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.

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