One Software Technologies (TLV:ONE) could become a typesetting machine

There are a few key trends to look out for if we want to identify the next multi-bagger. First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. Therefore, when we briefly examined A software technology (TLV:ONE) ROCE trend, we were very pleased with what we saw.

Understanding return on capital employed (ROCE)

For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. To calculate this metric for One Software Technologies, here is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.21 = ₪208m ÷ (₪1.9b – ₪971m) (Based on the last twelve months to March 2022).

Thereby, One Software Technologies posted a ROCE of 21%. In absolute terms, that’s a very respectable return and compared to the IT industry average of 22%, that’s roughly comparable.

Check out our latest analysis for One Software Technologies

TASE:ONE Return on Capital Employed July 1, 2022

Although the past is not indicative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to dive deep into One Software Technologies earnings, revenue, and cash flow history, check out these free graphics here.

So, what is the ROCE trend of One Software Technologies?

It’s hard not to be impressed with One Software Technologies’ return on capital. The company has employed 150% more capital over the past five years, and the return on that capital has remained stable at 21%. Now considering that the ROCE is an attractive 21%, this combination is actually quite attractive because it means the company can consistently put money to work and generate those high returns. If One Software Technologies can continue like this, we would be very optimistic about its future.

Besides, One Software Technologies current liabilities are still quite high at 50% of total assets. This may entail certain risks, since the business is essentially dependent on its suppliers or other types of short-term creditors. Although this is not necessarily a bad thing, it can be beneficial if this ratio is lower.

In conclusion…

One Software Technologies has a proven track record of delivering high returns on increasing amounts of capital employed, which we are delighted about. And long-term investors would be delighted with the 365% return they’ve received over the past five years. So while the stock may be more “expensive” than it was before, we believe the strong fundamentals warrant this stock for further research.

However, One Software Technologies carries certain risks, and we have spotted 1 warning sign for One Software Technologies that might interest you.

If you want to find more stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.

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.