Zensar Technologies (NSE:ZENSARTECH) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Zensar Technologies' (NSE:ZENSARTECH) ROCE trend, we were pretty happy with what we saw.

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

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 Zensar Technologies, this is the formula:

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

0.18 = ₹7.1b ÷ (₹48b - ₹8.4b) (Based on the trailing twelve months to September 2024).

So, Zensar Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 14% it's much better.

Check out our latest analysis for Zensar Technologies

Above you can see how the current ROCE for Zensar Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Zensar Technologies .

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 61% more capital into its operations. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Zensar Technologies has done well to reduce current liabilities to 17% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Zensar Technologies' ROCE

In the end, Zensar Technologies has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 391% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

While Zensar Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.