Returns At Korn Ferry (NYSE:KFY) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Korn Ferry (NYSE:KFY) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Korn Ferry, this is the formula:

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

0.10 = US$287m ÷ (US$3.5b - US$718m) (Based on the trailing twelve months to October 2024).

Therefore, Korn Ferry has an ROCE of 10%. In isolation, that's a pretty standard return but against the Professional Services industry average of 15%, it's not as good.

Check out our latest analysis for Korn Ferry

Above you can see how the current ROCE for Korn Ferry 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 Korn Ferry .

So How Is Korn Ferry's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 10%. 10% is a pretty standard return, and it provides some comfort knowing that Korn Ferry 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.

The Key Takeaway

In the end, Korn Ferry has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 68% to shareholders 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.

If you want to continue researching Korn Ferry, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Korn Ferry 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.