Returns On Capital At EPAM Systems (NYSE:EPAM) Have Hit The Brakes

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So, when we ran our eye over EPAM Systems' (NYSE:EPAM) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on EPAM Systems is:

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

0.19 = US$630m ÷ (US$4.1b - US$683m) (Based on the trailing twelve months to March 2023).

So, EPAM Systems has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 14% it's much better.

Check out our latest analysis for EPAM Systems

Above you can see how the current ROCE for EPAM Systems compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering EPAM Systems here for free.

So How Is EPAM Systems' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 191% in that time. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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 Bottom Line

To sum it up, EPAM Systems has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 86% 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.

While EPAM Systems doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

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.