Investors Shouldn't Overlook GlobalData's (LON:DATA) Impressive Returns On Capital

If you're looking for a multi-bagger, there's a few things to 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of GlobalData (LON:DATA) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on GlobalData is:

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

0.21 = UK£74m ÷ (UK£492m - UK£144m) (Based on the trailing twelve months to December 2023).

So, GlobalData has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the Professional Services industry average of 19% it's pretty much on par.

View our latest analysis for GlobalData

roce

In the above chart we have measured GlobalData'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 GlobalData for free.

The Trend Of ROCE

We like the trends that we're seeing from GlobalData. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The amount of capital employed has increased too, by 57%. So we're very much inspired by what we're seeing at GlobalData thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that GlobalData is reaping the rewards from prior investments and is growing its capital base. And a remarkable 133% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if GlobalData can keep these trends up, it could have a bright future ahead.

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

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.

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