Returns At Xchanging Solutions (NSE:XCHANGING) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Xchanging Solutions' (NSE:XCHANGING) returns on capital, so let's have a look.

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Understanding 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)

0.14 = ₹586m ÷ (₹5.0b - ₹720m) (Based on the trailing twelve months to June 2025).

So, Xchanging Solutions has an ROCE of 14%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.

View our latest analysis for Xchanging Solutions

Historical performance is a great place to start when researching a stock so above you can see the gauge for Xchanging Solutions' ROCE against it's prior returns. If you'd like to look at how Xchanging Solutions has performed in the past in other metrics, you can view this free graph of Xchanging Solutions' past earnings, revenue and cash flow.

So How Is Xchanging Solutions' ROCE Trending?

Xchanging Solutions is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 38% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

As discussed above, Xchanging Solutions appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 79% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Xchanging Solutions does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

While Xchanging Solutions 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.