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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. Although, when we looked at Concurrent Technologies (LON:CNC), it didn't seem to tick all of these boxes.
Understanding 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. To calculate this metric for Concurrent Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = UK£4.0m ÷ (UK£48m - UK£9.7m) (Based on the trailing twelve months to December 2023).
Thus, Concurrent Technologies has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Tech industry average of 12%.
See our latest analysis for Concurrent Technologies
Above you can see how the current ROCE for Concurrent Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Concurrent Technologies .
What Can We Tell From Concurrent Technologies' ROCE Trend?
On the surface, the trend of ROCE at Concurrent Technologies doesn't inspire confidence. Around five years ago the returns on capital were 15%, but since then they've fallen to 10%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
The Key Takeaway
In summary, despite lower returns in the short term, we're encouraged to see that Concurrent Technologies is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 96% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.
One more thing, we've spotted 1 warning sign facing Concurrent Technologies that you might find interesting.