There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, SilverSun Technologies (NASDAQ:SSNT) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for SilverSun Technologies, this is the formula:

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

0.048 = US$539k ÷ (US$21m - US$9.5m) (Based on the trailing twelve months to June 2023).

So, SilverSun Technologies has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Software industry average of 8.9%.

See our latest analysis for SilverSun Technologies

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating SilverSun Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For SilverSun Technologies Tell Us?

SilverSun Technologies has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.8% which is a sight for sore eyes. In addition to that, SilverSun Technologies is employing 91% more capital than previously which is expected of a company that's 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.

Another thing to note, SilverSun Technologies has a high ratio of current liabilities to total assets of 46%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

Overall, SilverSun Technologies gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.