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. Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at DXC Technology (NYSE:DXC) and its trend of ROCE, we really liked what we saw.
What Is 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. Analysts use this formula to calculate it for DXC Technology:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.10 = US$885m ÷ (US$13b – US$4.4b) (Based on the trailing twelve months to March 2025).
Therefore, DXC Technology has an ROCE of 10%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the IT industry average of 9.5%.
See our latest analysis for DXC Technology
In the above chart we have measured DXC Technology’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 DXC Technology for free.
The Trend Of ROCE
You’d find it hard not to be impressed with the ROCE trend at DXC Technology. The figures show that over the last five years, returns on capital have grown by 36%. The company is now earning US$0.1 per dollar of capital employed. In regards to capital employed, DXC Technology appears to been achieving more with less, since the business is using 51% less capital to run its operation. A business that’s shrinking its asset base like this isn’t usually typical of a soon to be multi-bagger company.
In Conclusion…
From what we’ve seen above, DXC Technology has managed to increase it’s returns on capital all the while reducing it’s capital base. Given the stock has declined 14% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
Since virtually every company faces some risks, it’s worth knowing what they are, and we’ve spotted 3 warning signs for DXC Technology (of which 1 is a bit concerning!) that you should know about.
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.
