Return Trends At Xchanging Solutions (NSE:XCHANGING) Aren't Appealing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Xchanging Solutions (NSE:XCHANGING) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. To calculate this metric for Xchanging Solutions, this is the formula:

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

0.071 = ₹490m ÷ (₹7.4b - ₹546m) (Based on the trailing twelve months to March 2023).

So, Xchanging Solutions has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

See our latest analysis for Xchanging Solutions

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Xchanging Solutions, check out these free graphs here.

What Does the ROCE Trend For Xchanging Solutions Tell Us?

There are better returns on capital out there than what we're seeing at Xchanging Solutions. The company has consistently earned 7.1% for the last five years, and the capital employed within the business has risen 78% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Xchanging Solutions' ROCE

Long story short, while Xchanging Solutions has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 92% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Xchanging Solutions it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.