Advertisement
Canada markets closed
  • S&P/TSX

    22,320.87
    +120.08 (+0.54%)
     
  • S&P 500

    5,304.72
    +36.88 (+0.70%)
     
  • DOW

    39,069.59
    +4.33 (+0.01%)
     
  • CAD/USD

    0.7321
    +0.0036 (+0.50%)
     
  • CRUDE OIL

    77.80
    +0.93 (+1.21%)
     
  • Bitcoin CAD

    93,893.83
    +1,230.16 (+1.33%)
     
  • CMC Crypto 200

    1,437.18
    -30.92 (-2.11%)
     
  • GOLD FUTURES

    2,335.20
    -2.00 (-0.09%)
     
  • RUSSELL 2000

    2,069.67
    +21.26 (+1.04%)
     
  • 10-Yr Bond

    4.4670
    -0.0080 (-0.18%)
     
  • NASDAQ

    16,920.79
    +184.76 (+1.10%)
     
  • VOLATILITY

    11.93
    -0.84 (-6.58%)
     
  • FTSE

    8,317.59
    -21.64 (-0.26%)
     
  • NIKKEI 225

    38,646.11
    -457.11 (-1.17%)
     
  • CAD/EUR

    0.6744
    +0.0011 (+0.16%)
     

Slowing Rates Of Return At ePlus (NASDAQ:PLUS) Leave Little Room For Excitement

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So, when we ran our eye over ePlus' (NASDAQ:PLUS) trend of ROCE, we liked what we saw.

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 ePlus, this is the formula:

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

0.18 = US$175m ÷ (US$1.6b - US$631m) (Based on the trailing twelve months to December 2023).

ADVERTISEMENT

Therefore, ePlus has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

See our latest analysis for ePlus

roce
roce

Above you can see how the current ROCE for ePlus compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ePlus for free.

So How Is ePlus' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 121% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On ePlus' ROCE

To sum it up, ePlus has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 63% return if they held 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.

If you're still interested in ePlus it's worth checking out our FREE intrinsic value approximation for PLUS to see if it's trading at an attractive price in other respects.

While ePlus may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.