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Should We Be Excited About The Trends Of Returns At ANSYS (NASDAQ:ANSS)?

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Simply Wall St
·3 min read
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There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think ANSYS (NASDAQ:ANSS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is 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. Analysts use this formula to calculate it for ANSYS:

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

0.10 = US$426m ÷ (US$4.8b - US$562m) (Based on the trailing twelve months to September 2020).

Thus, ANSYS has an ROCE of 10.0%. On its own, that's a low figure but it's around the 9.4% average generated by the Software industry.

Check out our latest analysis for ANSYS

roce
roce

Above you can see how the current ROCE for ANSYS compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ANSYS.

How Are Returns Trending?

When we looked at the ROCE trend at ANSYS, we didn't gain much confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 10.0%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From ANSYS' ROCE

To conclude, we've found that ANSYS is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 299% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

ANSYS could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While ANSYS isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.