Returns On Capital At EPAM Systems (NYSE:EPAM) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, the ROCE of EPAM Systems (NYSE:EPAM) looks decent, right now, so lets see what the trend of returns can tell us.

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. 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$655m ÷ (US$4.1b - US$584m) (Based on the trailing twelve months to June 2023).

Therefore, 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

In the above chart we have measured EPAM Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for EPAM Systems.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 190% more capital into its operations. 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.

What We Can Learn From EPAM Systems' ROCE

To sum it up, EPAM Systems has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 105% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in EPAM Systems it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.