If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at Cognizant Technology Solutions' (NASDAQ:CTSH) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Cognizant Technology Solutions:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.19 = US$3.0b ÷ (US$19b - US$2.9b) (Based on the trailing twelve months to June 2024).

Thus, Cognizant Technology Solutions has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 11% it's much better.

Above you can see how the current ROCE for Cognizant Technology Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cognizant Technology Solutions .

What Can We Tell From Cognizant Technology Solutions' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 23% in that time. 19% is a pretty standard return, and it provides some comfort knowing that Cognizant Technology Solutions has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Cognizant Technology Solutions' ROCE

In the end, Cognizant Technology Solutions has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 36% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you want to continue researching Cognizant Technology Solutions, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.