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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in CLPS Incorporation's (NASDAQ:CLPS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 CLPS Incorporation is:

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

0.0028 = US$199k ÷ (US$106m - US$35m) (Based on the trailing twelve months to December 2023).

Therefore, CLPS Incorporation has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the IT industry average of 11%.

See our latest analysis for CLPS Incorporation

Historical performance is a great place to start when researching a stock so above you can see the gauge for CLPS Incorporation's ROCE against it's prior returns. If you'd like to look at how CLPS Incorporation has performed in the past in other metrics, you can view this free graph of CLPS Incorporation's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

CLPS Incorporation has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 0.3% on its capital. Not only that, but the company is utilizing 252% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On CLPS Incorporation's ROCE

Overall, CLPS Incorporation gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 68% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.