SilverSun Technologies (NASDAQ:SSNT) Will Want To Turn Around Its Return Trends
There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating SilverSun Technologies (NASDAQ:SSNT), we don't think it's current trends fit the mold of a multi-bagger.
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. Analysts use this formula to calculate it for SilverSun Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00036 = US$3.9k ÷ (US$21m - US$10m) (Based on the trailing twelve months to March 2023).
So, SilverSun Technologies has an ROCE of 0.04%. Ultimately, that's a low return and it under-performs the Software industry average of 10%.
View our latest analysis for SilverSun Technologies
Historical performance is a great place to start when researching a stock so above you can see the gauge for SilverSun Technologies' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of SilverSun Technologies, check out these free graphs here.
How Are Returns Trending?
On the surface, the trend of ROCE at SilverSun Technologies doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.04% from 16% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
Another thing to note, SilverSun Technologies has a high ratio of current liabilities to total assets of 48%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
What We Can Learn From SilverSun Technologies' ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SilverSun Technologies. These trends are starting to be recognized by investors since the stock has delivered a 7.9% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
SilverSun Technologies does have some risks though, and we've spotted 2 warning signs for SilverSun Technologies that you might be interested in.
While SilverSun Technologies 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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