Takeaways NEW
- BlackLine records improvements in return on capital despite below-industry-average ROCE.
- The company has raised capital, indicating promising reinvestment opportunities.
For investors seeking the next promising investment, the development of the Return on Capital Employed (ROCE) is a crucial indicator. Among the companies that stand out in this regard, BlackLine is noteworthy. The company has recently made significant progress in its capital profitability that merits closer examination.
The ROCE, a metric for a company's annual pre-tax profit relative to the capital employed, currently stands at 2.1% for BlackLine. This is described by the formula: Earnings Before Interest and Taxes (EBIT) divided by (Total Assets minus Current Liabilities). With an EBIT of 28 million USD and capital of 1.323 billion USD (considering liabilities), profitability remains below the industry average of 9.1% for the software industry.
Despite this currently low profitability, there is reason for optimism. BlackLine was still incurring losses five years ago but has reversed this trend and is now recording pre-tax profits. The fact that the company has increased its capital by 65% suggests promising reinvestment opportunities that could potentially lead to higher returns.
BlackLine has successfully set on the path to profitability and is seizing the opportunity to further invest in its business. The stock has returned just 19% in value to shareholders over the past five years. This suggests that the core strengths of the company have not yet been fully recognized by investors. A deeper analysis of this stock could reveal a rewarding investment opportunity, provided the valuation and other metrics fit.
In conclusion, we would like to point out that two warning signals have been detected at BlackLine, one of which causes some unease. A list of companies with over 25% equity return could also be of interest.
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