Returns At EPAM Systems (NYSE:EPAM) Appear To Be Weighed Down

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of EPAM Systems (NYSE:EPAM) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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 EPAM Systems, this is the formula:

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

0.16 = US$585m ÷ (US$4.4b - US$645m) (Based on the trailing twelve months to December 2023).

So, EPAM Systems has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 13% it's much better.

View our latest analysis for EPAM Systems

roce

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 analyst report for EPAM Systems .

So How Is EPAM Systems' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 175% in that time. 16% is a pretty standard return, and it provides some comfort knowing that EPAM Systems 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 EPAM Systems' ROCE

To sum it up, EPAM Systems has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 38% over the last five years for shareholders who have owned the stock in this period. So to determine if EPAM Systems is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

EPAM Systems does have some risks though, and we've spotted 1 warning sign for EPAM Systems that you might be interested in.

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.