Yahoo Finance Why You Should Care About Accenture's (NYSE:ACN) Strong Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Accenture (NYSE:ACN), 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. The formula for this calculation on Accenture is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$10b ÷ (US$54b - US$18b) (Based on the trailing twelve months to May 2024).
Thus, Accenture has an ROCE of 28%. In absolute terms that's a great return and it's even better than the IT industry average of 11%.
See our latest analysis for Accenture
In the above chart we have measured Accenture's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Accenture .
What Does the ROCE Trend For Accenture Tell Us?
We'd be pretty happy with returns on capital like Accenture. The company has consistently earned 28% for the last five years, and the capital employed within the business has risen 104% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Accenture can keep this up, we'd be very optimistic about its future.
Our Take On Accenture's ROCE
Accenture has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 76% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for ACN on our platform that is definitely worth checking out.
Accenture is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
