Datamatics Global Services (NSE:DATAMATICS) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Datamatics Global Services' (NSE:DATAMATICS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Datamatics Global Services, this is the formula:

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

0.19 = ₹2.1b ÷ (₹13b - ₹1.9b) (Based on the trailing twelve months to March 2023).

Thus, Datamatics Global Services has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Professional Services industry.

See our latest analysis for Datamatics Global Services

In the above chart we have measured Datamatics Global Services' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Datamatics Global Services

The Trend Of ROCE

We like the trends that we're seeing from Datamatics Global Services. The data shows that returns on capital have increased substantially over the last five years to 19%. 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 82%. So we're very much inspired by what we're seeing at Datamatics Global Services thanks to its ability to profitably reinvest capital.

Our Take On Datamatics Global Services' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Datamatics Global Services has. Since the stock has returned a staggering 518% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Datamatics Global Services can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Datamatics Global Services, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.