The Return Trends At Guidewire Software (NYSE:GWRE) Look Promising

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at Guidewire Software (NYSE:GWRE) so let's look a bit deeper.

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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. To calculate this metric for Guidewire Software, this is the formula:

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

0.01 = US$22m ÷ (US$2.5b - US$406m) (Based on the trailing twelve months to April 2025).

Therefore, Guidewire Software has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.3%.

Check out our latest analysis for Guidewire Software NYSE:GWRE Return on Capital Employed August 15th 2025

Above you can see how the current ROCE for Guidewire Software compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Guidewire Software .

The Trend Of ROCE

We're delighted to see that Guidewire Software is reaping rewards from its investments and has now broken into profitability. The company now earns 1.0% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Guidewire Software has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

What We Can Learn From Guidewire Software's ROCE

As discussed above, Guidewire Software appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 88% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Story Continues

If you want to continue researching Guidewire Software, you might be interested to know about the 2 warning signsthat our analysis has discovered.

While Guidewire Software isn't earning the highest return, check out this freelist of companies that are earning high returns on equity with solid balance sheets.

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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.

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