Why The 46% Return On Capital At Computer Age Management Services (NSE:CAMS) Should Have Your Attention

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Computer Age Management Services (NSE:CAMS) looks great, so lets see what the trend 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. To calculate this metric for Computer Age Management Services, this is the formula:

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

0.46 = ₹3.3b ÷ (₹9.1b - ₹2.0b) (Based on the trailing twelve months to September 2021).

Thus, Computer Age Management Services has an ROCE of 46%. In absolute terms that's a great return and it's even better than the IT industry average of 13%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Computer Age Management Services Tell Us?

We like the trends that we're seeing from Computer Age Management Services. The data shows that returns on capital have increased substantially over the last four years to 46%. The amount of capital employed 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.

The Bottom Line On Computer Age Management 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 Computer Age Management Services has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 51% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

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.