Returns At Conduent (NASDAQ:CNDT) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Conduent (NASDAQ:CNDT) so let's look a bit deeper.

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 Conduent:

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

0.038 = US$118m ÷ (US$4.1b - US$987m) (Based on the trailing twelve months to September 2021).

Thus, Conduent has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the IT industry average of 14%.

Check out our latest analysis for Conduent

Above you can see how the current ROCE for Conduent 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 report for Conduent.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased by 193% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 53% less capital than it was five years ago. Conduent may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

In a nutshell, we're pleased to see that Conduent has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 60% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Conduent does have some risks though, and we've spotted 1 warning sign for Conduent that you might be interested in.

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

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.

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