Computer Age Management Services (NSE:CAMS) Knows How To Allocate Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Computer Age Management Services' (NSE:CAMS) 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 Computer Age Management Services is:

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

0.43 = ₹5.2b ÷ (₹15b - ₹2.9b) (Based on the trailing twelve months to September 2024).

Therefore, Computer Age Management Services has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 11%.

View our latest analysis for Computer Age Management Services

Above you can see how the current ROCE for Computer Age Management Services 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 Computer Age Management Services .

What Can We Tell From Computer Age Management Services' ROCE Trend?

We like the trends that we're seeing from Computer Age Management Services. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 43%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 83%. So we're very much inspired by what we're seeing at Computer Age Management Services thanks to its ability to profitably reinvest capital.

What We Can Learn From Computer Age Management Services' ROCE

All in all, it's terrific to see that Computer Age Management Services is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 58% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing Computer Age Management Services that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.