Why The 20% Return On Capital At Korn Ferry (NYSE:KFY) Should Have Your Attention

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 Korn Ferry's (NYSE:KFY) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Korn Ferry:

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

0.20 = US$507m ÷ (US$3.3b - US$755m) (Based on the trailing twelve months to October 2022).

So, Korn Ferry has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Korn Ferry Tell Us?

Investors would be pleased with what's happening at Korn Ferry. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 52%. So we're very much inspired by what we're seeing at Korn Ferry thanks to its ability to profitably reinvest capital.

What We Can Learn From Korn Ferry's ROCE

All in all, it's terrific to see that Korn Ferry is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 42% return over the last five years. In light of that, we think it's worth looking further into this stock because if Korn Ferry can keep these trends up, it could have a bright future ahead.

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

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.