We Like Persistent Systems' (NSE:PERSISTENT) Returns And Here's How They're Trending

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. And in light of that, the trends we're seeing at Persistent Systems' (NSE:PERSISTENT) look very promising so lets take a look.

What Is 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. Analysts use this formula to calculate it for Persistent Systems:

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

0.23 = ₹9.2b ÷ (₹54b - ₹14b) (Based on the trailing twelve months to June 2022).

Thus, Persistent Systems has an ROCE of 23%. In absolute terms that's a great return and it's even better than the IT industry average of 10%.

View our latest analysis for Persistent Systems

Above you can see how the current ROCE for Persistent Systems 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 Persistent Systems here for free.

What Does the ROCE Trend For Persistent Systems Tell Us?

We like the trends that we're seeing from Persistent Systems. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. 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 107%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Persistent Systems' 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 Persistent Systems has. Since the stock has returned a staggering 529% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Persistent Systems can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.