There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at WNS (Holdings) (NYSE:WNS) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for WNS (Holdings), this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$148m ÷ (US$1.1b - US$195m) (Based on the trailing twelve months to September 2021).
Thus, WNS (Holdings) has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% generated by the IT industry.
Above you can see how the current ROCE for WNS (Holdings) 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 WNS (Holdings) here for free.
The Trend Of ROCE
We like the trends that we're seeing from WNS (Holdings). The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 102%. So we're very much inspired by what we're seeing at WNS (Holdings) thanks to its ability to profitably reinvest capital.
What We Can Learn From WNS (Holdings)'s ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what WNS (Holdings) has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
While WNS (Holdings) looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WNS is currently trading for a fair price.
While WNS (Holdings) 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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