Returns On Capital At HCL Technologies (NSE:HCLTECH) Have Stalled

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 while HCL Technologies (NSE:HCLTECH) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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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. The formula for this calculation on HCL Technologies is:

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

0.28 = US$2.5b ÷ (US$12b - US$3.2b) (Based on the trailing twelve months to June 2025).

Thus, HCL Technologies has an ROCE of 28%. In absolute terms that's a great return and it's even better than the IT industry average of 16%.

View our latest analysis for HCL Technologies

Above you can see how the current ROCE for HCL Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for HCL Technologies .

How Are Returns Trending?

Things have been pretty stable at HCL Technologies, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward. On top of that you'll notice that HCL Technologies has been paying out a large portion (83%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

The Bottom Line On HCL Technologies' ROCE

While HCL Technologies has impressive profitability from its capital, it isn't increasing that amount of capital. Yet to long term shareholders the stock has gifted them an incredible 149% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing to note, we've identified 1 warning sign with HCL Technologies and understanding it should be part of your investment process.

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.