Returns on Capital Paint A Bright Future For Vinsys IT Services India (NSE:VINSYS)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Vinsys IT Services India's (NSE:VINSYS) look very promising so lets take a look.

Our free stock report includes 2 warning signs investors should be aware of before investing in Vinsys IT Services India. Read for free now.

Understanding 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. To calculate this metric for Vinsys IT Services India, this is the formula:

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

0.25 = ₹317m ÷ (₹1.6b - ₹314m) (Based on the trailing twelve months to September 2024).

Therefore, Vinsys IT Services India has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 13%.

See our latest analysis for Vinsys IT Services India

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vinsys IT Services India's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Vinsys IT Services India.

What Does the ROCE Trend For Vinsys IT Services India Tell Us?

We like the trends that we're seeing from Vinsys IT Services India. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 851% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Vinsys IT Services India has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Vinsys IT Services India has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Vinsys IT Services India's ROCE

To sum it up, Vinsys IT Services India has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 14% to shareholders over the last year, 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 final note, you should learn about the 2 warning signs we've spotted with Vinsys IT Services India (including 1 which shouldn't be ignored) .

Vinsys IT Services India is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.