If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Ctac (AMS:CTAC) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Ctac is:

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

0.11 = €4.0m ÷ (€68m - €31m) (Based on the trailing twelve months to June 2024).

Thus, Ctac has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the IT industry average of 13%.

Check out our latest analysis for Ctac

Above you can see how the current ROCE for Ctac compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Ctac .

What Does the ROCE Trend For Ctac Tell Us?

Ctac is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 63%. So we're very much inspired by what we're seeing at Ctac thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Ctac has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Ctac has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 65% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Ctac does have some risks though, and we've spotted 4 warning signs for Ctac that you might be interested in.