There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at EPAM Systems (NYSE:EPAM), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for EPAM Systems, this is the formula:

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

0.20 = US$694m ÷ (US$4.2b - US$614m) (Based on the trailing twelve months to September 2023).

So, EPAM Systems has an ROCE of 20%. In absolute terms that's a great return and it's even better than the IT industry average of 12%.

See our latest analysis for EPAM Systems

Above you can see how the current ROCE for EPAM Systems 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 report for EPAM Systems.

How Are Returns Trending?

We'd be pretty happy with returns on capital like EPAM Systems. Over the past five years, ROCE has remained relatively flat at around 20% and the business has deployed 177% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If EPAM Systems can keep this up, we'd be very optimistic about its future.

The Bottom Line On EPAM Systems' ROCE

EPAM Systems has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 78% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing EPAM Systems, we've discovered 1 warning sign that you should be aware of.

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.