If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Computacenter (LON:CCC), we liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Computacenter:

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

0.20 = UK￡224m ÷ (UK￡3.0b - UK￡1.9b) (Based on the trailing twelve months to June 2024).

So, Computacenter has an ROCE of 20%. In absolute terms that's a very respectable return and compared to the IT industry average of 17% it's pretty much on par.

View our latest analysis for Computacenter

Above you can see how the current ROCE for Computacenter 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 Computacenter .

What The Trend Of ROCE Can Tell Us

We'd be pretty happy with returns on capital like Computacenter. The company has employed 69% more capital in the last five years, and the returns on that capital have remained stable at 20%. Now considering ROCE is an attractive 20%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Computacenter can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that Computacenter has a current liabilities to total assets ratio of 62%, 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.

The Bottom Line

In short, we'd argue Computacenter has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 112% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.