Should You Be Excited About Intelligent Systems' (NYSEMKT:INS) Returns On Capital?
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Intelligent Systems (NYSEMKT:INS) looks great, so lets see what the trend can tell us.
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 Intelligent Systems, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$13m ÷ (US$55m - US$8.4m) (Based on the trailing twelve months to September 2020).
Therefore, Intelligent Systems has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Software industry average of 9.4%.
Check out our latest analysis for Intelligent Systems
In the above chart we have measured Intelligent Systems' 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 Intelligent Systems.
So How Is Intelligent Systems' ROCE Trending?
We're delighted to see that Intelligent Systems is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 27% on its capital. And unsurprisingly, like most companies trying to break into the black, Intelligent Systems is utilizing 105% more capital than it was five years ago. 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.
Our Take On Intelligent Systems' ROCE
In summary, it's great to see that Intelligent Systems has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 1,396% 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.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
This article by Simply Wall St is general in nature. 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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