Under The Bonnet, Computer Age Management Services' (NSE:CAMS) Returns Look Impressive

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at the ROCE trend of Computer Age Management Services (NSE:CAMS) we really liked what we saw.

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. The formula for this calculation on Computer Age Management Services is:

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

0.50 = ₹3.6b ÷ (₹9.1b - ₹2.0b) (Based on the trailing twelve months to December 2021).

Therefore, Computer Age Management Services has an ROCE of 50%. 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 Computer Age Management Services

In the above chart we have measured Computer Age Management 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 Computer Age Management Services here for free.

What Can We Tell From Computer Age Management Services' ROCE Trend?

Investors would be pleased with what's happening at Computer Age Management Services. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 50%. 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 26%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

To sum it up, Computer Age Management Services has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 8.1% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Computer Age Management Services, we've discovered 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.