What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in ExlService Holdings' (NASDAQ:EXLS) returns on capital, so let's have a look.
Understanding 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 ExlService Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$235m ÷ (US$1.4b - US$306m) (Based on the trailing twelve months to September 2023).
Thus, ExlService Holdings has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
See our latest analysis for ExlService Holdings
In the above chart we have measured ExlService Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ExlService Holdings here for free.
What Can We Tell From ExlService Holdings' ROCE Trend?
Investors would be pleased with what's happening at ExlService Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at ExlService Holdings thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that ExlService Holdings is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching ExlService Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.