If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in line with growth amount capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With this in mind, the ROCE of Coforge (NSE: COFORGE) looks decent, right now, so let’s see what the yield trend can tell us.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. To calculate this metric for Coforge, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.20 = 6.6b ÷ (₹ 45b – ₹ 12b) (Based on the last twelve months up to June 2021).
Thereby, Coforge has a ROCE of 20%. In absolute terms, it’s a decent performance, but compared to the IT industry average of 12%, it’s much better.
Discover our latest analysis for Coforge
In the graph above, we measured Coforge’s past ROCE against its past performance, but the future is arguably more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Coforge.
What the ROCE trend can tell us
While current returns on capital are decent, they haven’t changed much. The company has steadily gained 20% over the past five years and the capital employed within the company has increased by 77% during this period. 20% is a fairly standard return, and it is reassuring knowing that Coforge has always earned this amount. Over long periods of time, returns like these may not be very exciting, but with consistency, they can be profitable in terms of stock price performance.
In the end, Coforge has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock rewarded shareholders with a remarkable 1,244% return for those who have held it over the past five years. So while the positive underlying trends can be explained by investors, we still believe this stock is worth looking into.
If you wish to continue your research on Coforge, you may be interested in knowing the 2 warning signs that our analysis found.
Although Coforge does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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