Shareholders Would Enjoy A Repeat Of EVERTEC's (NYSE:EVTC) Recent Growth In Returns
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of EVERTEC (NYSE:EVTC) looks great, so lets see what the trend 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. To calculate this metric for EVERTEC, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$198m ÷ (US$1.2b - US$161m) (Based on the trailing twelve months to March 2022).
Thus, EVERTEC 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%.
View our latest analysis for EVERTEC
In the above chart we have measured EVERTEC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering EVERTEC here for free.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from EVERTEC. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 31%. So we're very much inspired by what we're seeing at EVERTEC thanks to its ability to profitably reinvest capital.
The Bottom Line On EVERTEC's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what EVERTEC has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
While EVERTEC looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether EVTC is currently trading for a fair price.
EVERTEC 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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