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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Docebo (TSE:DCBO) we really liked what we saw.
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. Analysts use this formula to calculate it for Docebo:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.43 = US$21m ÷ (US$174m - US$125m) (Based on the trailing twelve months to September 2024).
Therefore, Docebo has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.
View our latest analysis for Docebo
In the above chart we have measured Docebo's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Docebo .
The Trend Of ROCE
Docebo has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses four years ago, but has managed to turn it around and as we saw earlier is now earning 43%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 72% of the business, which is more than it was four years ago. And with current liabilities at those levels, that's pretty high.