Capital Allocation Trends At L&T Technology Services (NSE:LTTS) Aren't Ideal

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at L&T Technology Services (NSE:LTTS), it does have a high ROCE right now, but lets see how returns are trending.

We've discovered 1 warning sign about L&T Technology Services. View them for free.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on L&T Technology Services is:

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

0.24 = ₹16b ÷ (₹96b - ₹30b) (Based on the trailing twelve months to March 2025).

Thus, L&T Technology Services has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See our latest analysis for L&T Technology Services

Above you can see how the current ROCE for L&T Technology Services 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 L&T Technology Services .

How Are Returns Trending?

In terms of L&T Technology Services' historical ROCE movements, the trend isn't fantastic. While it's comforting that the ROCE is high, five years ago it was 31%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On L&T Technology Services' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for L&T Technology Services. And long term investors must be optimistic going forward because the stock has returned a huge 321% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we've found 1 warning sign for L&T Technology Services that we think you should be aware of.

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.