Investors Met With Slowing Returns on Capital At Tech Mahindra (NSE:TECHM)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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, when we ran our eye over Tech Mahindra's (NSE:TECHM) trend of ROCE, we liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Tech Mahindra, this is the formula:

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

0.17 = ₹55b ÷ (₹445b - ₹127b) (Based on the trailing twelve months to June 2025).

Therefore, Tech Mahindra has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the IT industry.

See our latest analysis for Tech Mahindra

In the above chart we have measured Tech Mahindra's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Tech Mahindra for free.

So How Is Tech Mahindra's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 20% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Tech Mahindra has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Tech Mahindra's ROCE

In the end, Tech Mahindra has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 155% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

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

While Tech Mahindra may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.