2 weeks Ago By Simply Wall St.
In This Article: What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Veeva Systems ( NYSE:VEEV ), it didn't seem to tick all of these boxes.
What Is 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. The formula for this calculation on Veeva Systems is: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.11 = US$643m ÷ (US$6.
5b - US$857m) (Based on the trailing twelve months to October 2024) . Thus, Veeva Systems has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.
8% generated by the Healthcare Services industry. See our latest analysis for Veeva Systems In the above chart we have measured Veeva Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Veeva Systems for free.
What Does the ROCE Trend For Veeva Systems Tell Us? On the surface, the trend of ROCE at Veeva Systems doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns.
And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run. In Conclusion..
. Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Veeva Systems. Furthermore the stock has climbed 49% over the last five years, it would appear that investors are upbeat about the future.
So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further. If you're still interested in Veeva Systems it's worth checking out our FREE intrinsic value approximation for VEEV to see if it's trading at an attractive price in other respects..
