Capital Investment Trends At L&T Technology Services (NSE:LTTS) Look Strong

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 L&T Technology Services (NSE:LTTS) looks attractive right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for L&T Technology Services:

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

0.27 = ₹15b ÷ (₹69b - ₹15b) (Based on the trailing twelve months to March 2023).

Therefore, L&T Technology Services has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 12%.

Check out our latest analysis for L&T Technology Services

In the above chart we have measured L&T Technology Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering L&T Technology Services here for free.

What Does the ROCE Trend For L&T Technology Services Tell Us?

It's hard not to be impressed by L&T Technology Services' returns on capital. Over the past five years, ROCE has remained relatively flat at around 27% and the business has deployed 178% 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. If L&T Technology Services can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that L&T Technology Services has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 214% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 2 warning signs for L&T Technology Services you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.