Yahoo Finance Returns On Capital At IVU Traffic Technologies (ETR:IVU) Have Stalled
What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at IVU Traffic Technologies' (ETR:IVU) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for IVU Traffic Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €13m ÷ (€135m - €48m) (Based on the trailing twelve months to September 2023).
Thus, IVU Traffic Technologies has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Software industry average of 14%.
See our latest analysis for IVU Traffic Technologies
Historical performance is a great place to start when researching a stock so above you can see the gauge for IVU Traffic Technologies' ROCE against it's prior returns. If you're interested in investigating IVU Traffic Technologies' past further, check out this free graph covering IVU Traffic Technologies' past earnings, revenue and cash flow.
What Does the ROCE Trend For IVU Traffic Technologies Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 76% in that time. 15% is a pretty standard return, and it provides some comfort knowing that IVU Traffic Technologies has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line
To sum it up, IVU Traffic Technologies has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 98% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
IVU Traffic Technologies does have some risks though, and we've spotted 1 warning sign for IVU Traffic Technologies that you might be interested in.
While IVU Traffic Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
