What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at DUG Technology (ASX:DUG) and its trend of ROCE, we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for DUG Technology:

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

0.05 = US$3.6m ÷ (US$97m - US$24m) (Based on the trailing twelve months to December 2024).

So, DUG Technology has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Software industry average of 14%.

Check out our latest analysis for DUG Technology

Above you can see how the current ROCE for DUG Technology 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 DUG Technology .

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.0%. The amount of capital employed has increased too, by 108%. So we're very much inspired by what we're seeing at DUG Technology thanks to its ability to profitably reinvest capital.

The Bottom Line On DUG Technology's ROCE

In summary, it's great to see that DUG Technology can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 65% return over the last three years. In light of that, we think it's worth looking further into this stock because if DUG Technology can keep these trends up, it could have a bright future ahead.

If you want to continue researching DUG Technology, you might be interested to know about the 1 warning sign that our analysis has discovered.

While DUG Technology isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.