If you want to spot potential multibaggers, there are often underlying trends that can provide clues. Typically, you want to focus on growth trends. return Increase in capital employed (ROCE) and expand accordingly base of capital employed. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return. So when we looked through, Accenture's (NYSE:ACN) ROCE Trends, we really liked what we saw.
About Return on Capital Employed (ROCE)
For those who aren't sure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital employed in its business. To calculate this metric for Accenture, use the following formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.29 = USD 10 billion ÷ (USD 51 billion – USD 16 billion) (Based on the previous 12 months to February 2024).
therefore, Accenture's ROCE is 29%. That's an impressive return, and not only that, but it's also higher than the average 13% earned by companies in similar industries.
Check out our latest analysis for Accenture.
Above we show how Accenture's current ROCE compares to its previous return on equity, but history can only tell us so much. If you're interested, take a look at our analyst forecasts. free Accenture analyst report.
What can we learn from Accenture's ROCE trends?
If we had a return on capital like Accenture, we'd be pretty happy. The company has deployed 105% more capital over the past five years, and its return on capital has held steady at his 29%. A return like this would be the envy of most companies, and it's even better considering it has been repeatedly reinvested at such a rate. If this trend continues, it wouldn't be surprising if the company becomes a multibagger.
What we can learn from Accenture's ROCE
Accenture has demonstrated its proficiency in generating strong returns on increased capital employed, and we are excited about this. And the company has followed suit, returning a hefty 87% of its profits to shareholders over the past five years. So while investors seem to be aware of these encouraging trends, they still think this stock deserves further research.
On the other side of ROCE, you need to consider valuation.That's why we Estimate the intrinsic value of ACN for free on our platform It's definitely worth checking out.
If you want to see other companies making high profits, check us out. free Here is a list of companies with strong balance sheets and high profits.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
