Will The ROCE Trend At Conduent (NASDAQ:CNDT) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Conduent (NASDAQ:CNDT) so let's look a bit deeper.

What is 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. To calculate this metric for Conduent, this is the formula:

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

0.0033 = US$11m ÷ (US$4.4b - US$1.0b) (Based on the trailing twelve months to September 2020).

Thus, Conduent has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the IT industry average of 9.8%.

See 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.

How Are Returns Trending?

Like most people, we're pleased that Conduent is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 0.3% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 48%. Conduent could be selling under-performing assets since the ROCE is improving.

The Bottom Line

From what we've seen above, Conduent has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 67% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 2 warning signs for Conduent you'll probably want to know about.

While Conduent 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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