Stock Analysis

What We Make Of Upland Software's (NASDAQ:UPLD) Returns On Capital

  •  Updated
NasdaqGM:UPLD
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Upland Software (NASDAQ:UPLD) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Upland Software is:

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

0.0026 = US$2.3m ÷ (US$994m - US$115m) (Based on the trailing twelve months to September 2020).

So, Upland Software has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Software industry average of 9.7%.

See our latest analysis for Upland Software

roce
NasdaqGM:UPLD Return on Capital Employed November 26th 2020

In the above chart we have measured Upland Software's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Upland Software's ROCE Trend?

Upland Software has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.3% on its capital. In addition to that, Upland Software is employing 873% more capital than previously which is expected of a company that's trying to break into profitability. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Upland Software's ROCE

In summary, it's great to see that Upland Software has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 525% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 4 warning signs for Upland Software you'll probably want to know about.

While Upland Software may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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