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Should We Be Excited About The Trends Of Returns At WNS (Holdings) (NYSE:WNS)?

Simply Wall St
·3 mins read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of WNS (Holdings) (NYSE:WNS) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for WNS (Holdings):

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

0.16 = US$132m ÷ (US$1.0b - US$178m) (Based on the trailing twelve months to June 2020).

Thus, WNS (Holdings) has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 10% it's much better.

View our latest analysis for WNS (Holdings)

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In the above chart we have measured WNS (Holdings)'s prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is WNS (Holdings)'s ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 114% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that WNS (Holdings) 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.

The Bottom Line On WNS (Holdings)'s ROCE

To sum it up, WNS (Holdings) has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 121% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, WNS (Holdings) does come with some risks, and we've found 1 warning sign that you should be aware of.

While WNS (Holdings) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.