Here's What Computer Age Management Services' (NSE:CAMS) Strong Returns On Capital Mean

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Computer Age Management Services (NSE:CAMS) looks attractive right now, so lets see what the trend of returns can tell us.

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

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 Computer Age Management Services, this is the formula:

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

0.39 = ₹4.3b ÷ (₹14b - ₹3.1b) (Based on the trailing twelve months to March 2024).

Therefore, Computer Age Management Services has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 11%.

See 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 The Trend Of ROCE Can Tell Us

In terms of Computer Age Management Services' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 39% and the business has deployed 83% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From Computer Age Management Services' ROCE

Computer Age Management Services has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 35% to shareholders over the last three years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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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