The Return Trends At Datamatics Global Services (NSE:DATAMATICS) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Datamatics Global Services (NSE:DATAMATICS) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Datamatics Global Services, this is the formula:

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

0.18 = ₹1.6b ÷ (₹11b - ₹2.2b) (Based on the trailing twelve months to March 2022).

Thus, Datamatics Global Services has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.8% generated by the IT industry.

See our latest analysis for Datamatics Global Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for Datamatics Global Services' ROCE against it's prior returns. If you'd like to look at how Datamatics Global Services has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Datamatics Global Services' ROCE Trend?

Investors would be pleased with what's happening at Datamatics Global Services. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 64%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

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 Datamatics Global Services has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Datamatics Global Services can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Datamatics Global Services you'll probably want to know about.

While Datamatics Global Services isn't earning the highest return, check out this free list of companies that are 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.