<!-- HTML_TAG_START -->NasdaqGS:AUDC Return on Capital Employed December 23rd 2024<!-- HTML_TAG_END -->
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. 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. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at AudioCodes (NASDAQ:AUDC), it didn’t seem to tick all of these boxes.
For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for AudioCodes, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.081 = US$20m ÷ (US$326m – US$75m) (Based on the trailing twelve months to September 2024).
So, AudioCodes has an ROCE of 8.1%. In absolute terms, that’s a low return but it’s around the Communications industry average of 9.7%.
View our latest analysis for AudioCodes
Above you can see how the current ROCE for AudioCodes compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for AudioCodes .
On the surface, the trend of ROCE at AudioCodes doesn’t inspire confidence. To be more specific, ROCE has fallen from 14% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It’s worth keeping an eye on the company’s earnings from here on to see if these investments do end up contributing to the bottom line.
Bringing it all together, while we’re somewhat encouraged by AudioCodes’ reinvestment in its own business, we’re aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 59% in the last five years. Therefore based on the analysis done in this article, we don’t think AudioCodes has the makings of a multi-bagger.
On a final note, we’ve found 1 warning sign for AudioCodes that we think you should be aware of.
While AudioCodes may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
