Returns On Capital At Cognizant Technology Solutions (NASDAQ:CTSH) Have Stalled What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Cognizant Technology Solutions (NASDAQ:CTSH) and its trend of ROCE, we really liked what we saw. Return On Capital Employed (ROCE): What is it? 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 Cognizant Technology Solutions, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.16 = US$1.7b ÷ (US$16b - US$7.9b) (Based on the trailing twelve months to June 2021). Therefore, Cognizant Technology Solutions has an ROCE of 16%. That's a fairly typical return and it's in line with the industry average of 16%. Check out our latest analysis for Cognizant Technology Solutions Above the industry average ROCE In terms of their ROCE, it’s worth noting that Cognizant Technology Solutions is sitting roughly in line with the industry average of 16%. Independently of how Cognizant Technology Solutions compares to its industry, its ROCE in absolute terms appears decent and it may be worth researching in more depth. We can see that , Cognizant Technology Solutions currently has an ROCE of 16%, less than the 28% it reported three years ago. Therefore, we're a bit hesitant to put a lot of weight behind the ROCE trend, because companies in shrinking capital employed can lead to decreasing returns often, and thus aren't always an attractive investment. So the company is either reinvesting a lot of its profits at very high rates of return – or much of its capital employed has gone. Cognizant Technology Solutions' current ROCE of 16% is lower than its ROCE in the past, which indicates the company's capital efficiency has declined. This could be due to a number of factors, such as increased competition or a decrease in profitability. Investors should consider whether this decline in ROCE is a result of a temporary issue or a long-term trend. What We Can Learn From Cognizant Technology Solutions’ ROCE While the company's ROCE is lower than it was in the past, the decline in capital efficiency could be a sign of a temporary issue or a long-term trend that investors should consider. Additionally, it's worth noting that Cognizant Technology Solutions is reinvesting a significant amount of its profits at high rates of return, indicating the potential for future growth. Overall, Cognizant Technology Solutions appears to be a promising investment opportunity. However, before making a decision, it's essential to consider other factors such as the valuation, industry outlook, and company-specific factors. On a side note, we've found 1 warning sign for Cognizant Technology Solutions that investors should look out for. If you want to look at stocks that are growing earnings, revenue, and cash flow, you may wish to consider some of the stocks that have been summarised in the link below. Promoted If you decide to trade Cognizant Technology Solutions, use the lowest-cost* platform that is rated #1 Overall by Barron's, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. This article by Simply Wall St is general in nature. 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. *Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020 Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.
top of page
bottom of page