NICE (TLV:NICE) seeks to continue to increase returns on capital
If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Ideally, a business will show two trends; first growth come back on capital employed (ROCE) and on the other hand, growth amount capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. So on that note, PLEASANT (TLV:NICE) looks quite promising when it comes to its capital return trends.
Understanding return on capital employed (ROCE)
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for NICE, here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.079 = $272 million ÷ ($4.7 billion – $1.2 billion) (Based on the last twelve months to March 2022).
Thereby, NICE posted a ROCE of 7.9%. In absolute terms, this is a weak performer and it also underperforms the software industry average of 9.9%.
Discover our latest analysis for NICE
Above, you can see how NICE’s current ROCE compares to its past returns on capital, but you can’t say anything about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
The ROCE trend
Although in absolute terms this is not a high ROCE, it is promising to see it moving in the right direction. The data shows that capital returns have increased significantly over the past five years to 7.9%. The company is actually making more money per dollar of capital used, and it’s worth noting that the amount of capital has also increased by 57%. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.
The essentials of the NICE ROCE
Overall, it is great to see that NICE is reaping the rewards of past investments and increasing its capital. And a remarkable total return of 152% over the past five years tells us that investors expect more good things to come. That being said, we still think the promising fundamentals mean the company merits further due diligence.
Before drawing any conclusions, we need to know what value we get for the current stock price. This is where you can view our FREE Intrinsic Value Estimate which compares the stock price and the estimated value.
Although NICE does not generate the highest yield, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.