Cliq Digital (ETR:CLIQ) Is Investing Its Capital With Increasing Efficiency
What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Cliq Digital (ETR:CLIQ) we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Cliq Digital, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.46 = €48m ÷ (€148m - €43m) (Based on the trailing twelve months to June 2023).
Thus, Cliq Digital has an ROCE of 46%. In absolute terms that's a great return and it's even better than the Software industry average of 12%.
View our latest analysis for Cliq Digital
In the above chart we have measured Cliq Digital's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Cliq Digital.
What Can We Tell From Cliq Digital's ROCE Trend?
Investors would be pleased with what's happening at Cliq Digital. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 46%. The amount of capital employed has increased too, by 111%. So we're very much inspired by what we're seeing at Cliq Digital thanks to its ability to profitably reinvest capital.
The Bottom Line
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 Cliq Digital has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Cliq Digital does have some risks though, and we've spotted 1 warning sign for Cliq Digital that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
