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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at accesso Technology Group (LON:ACSO) and its ROCE trend, we weren't exactly thrilled.
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. Analysts use this formula to calculate it for accesso Technology Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = US$14m ÷ (US$222m - US$34m) (Based on the trailing twelve months to June 2022).
Thus, accesso Technology Group has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Software industry average of 9.4%.
Check out our latest analysis for accesso Technology Group
In the above chart we have measured accesso Technology Group's 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 accesso Technology Group here for free.
The Trend Of ROCE
In terms of accesso Technology Group's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 7.3% and the business has deployed 45% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
What We Can Learn From accesso Technology Group's ROCE
As we've seen above, accesso Technology Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 70% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think accesso Technology Group has the makings of a multi-bagger.
If you want to continue researching accesso Technology Group, you might be interested to know about the 1 warning sign that our analysis has discovered.
While accesso Technology Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.