U.S. Markets closed
  • S&P 500

    4,538.43
    -38.67 (-0.84%)
     
  • Dow 30

    34,580.08
    -59.71 (-0.17%)
     
  • Nasdaq

    15,085.47
    -295.85 (-1.92%)
     
  • Russell 2000

    2,159.31
    -47.02 (-2.13%)
     
  • Crude Oil

    66.22
    -0.28 (-0.42%)
     
  • Gold

    1,782.10
    +21.40 (+1.22%)
     
  • Silver

    22.57
    +0.25 (+1.12%)
     
  • EUR/USD

    1.1317
    +0.0012 (+0.1019%)
     
  • 10-Yr Bond

    1.3430
    -0.1050 (-7.25%)
     
  • Vix

    30.67
    +2.72 (+9.73%)
     
  • GBP/USD

    1.3235
    -0.0067 (-0.5029%)
     
  • USD/JPY

    112.8000
    -0.4090 (-0.3613%)
     
  • BTC-USD

    49,414.28
    +1,394.56 (+2.90%)
     
  • CMC Crypto 200

    1,367.14
    -74.62 (-5.18%)
     
  • FTSE 100

    7,122.32
    -6.89 (-0.10%)
     
  • Nikkei 225

    28,029.57
    +276.20 (+1.00%)
     

Returns Are Gaining Momentum At AudioCodes (NASDAQ:AUDC)

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at AudioCodes (NASDAQ:AUDC) so let's look a bit deeper.

What is 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 AudioCodes is:

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

0.15 = US$38m ÷ (US$358m - US$95m) (Based on the trailing twelve months to December 2020).

Thus, AudioCodes has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Communications industry.

View our latest analysis for AudioCodes

roce
roce

In the above chart we have measured AudioCodes' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering AudioCodes here for free.

So How Is AudioCodes' ROCE Trending?

Investors would be pleased with what's happening at AudioCodes. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 80% more capital is being employed now too. So we're very much inspired by what we're seeing at AudioCodes thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that AudioCodes is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 634% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for AudioCodes that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.