Shareholders Would Enjoy A Repeat Of Infosys' (NSE:INFY) Recent Growth In Returns

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Infosys (NSE:INFY) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Infosys:

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

0.35 = US$4.1b ÷ (US$16b - US$4.8b) (Based on the trailing twelve months to December 2024).

Therefore, Infosys has an ROCE of 35%. In absolute terms that's a great return and it's even better than the IT industry average of 15%.

Check out our latest analysis for Infosys

Above you can see how the current ROCE for Infosys compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Infosys for free.

So How Is Infosys' ROCE Trending?

Investors would be pleased with what's happening at Infosys. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 35%. 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 23%. So we're very much inspired by what we're seeing at Infosys thanks to its ability to profitably reinvest capital.

The Bottom Line

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 Infosys has. Since the stock has returned a staggering 164% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

Infosys 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.