Genpact (NYSE:G) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Genpact (NYSE:G) and its trend of ROCE, we really liked 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. The formula for this calculation on Genpact is:

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

0.17 = US$601m ÷ (US$4.5b - US$931m) (Based on the trailing twelve months to June 2023).

Therefore, Genpact has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 13% it's much better.

View our latest analysis for Genpact

In the above chart we have measured Genpact's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Genpact.

What Can We Tell From Genpact's ROCE Trend?

Investors would be pleased with what's happening at Genpact. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Genpact's ROCE

All in all, it's terrific to see that Genpact is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 27% to shareholders. So with that in mind, we think the stock deserves further research.

On a final note, we've found 2 warning signs for Genpact that we think you should be aware of.

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.