Shareholders Would Enjoy A Repeat Of Paylocity Holding's (NASDAQ:PCTY) 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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Paylocity Holding's (NASDAQ:PCTY) look very promising so lets take a look.
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 Paylocity Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$316m ÷ (US$4.2b - US$2.9b) (Based on the trailing twelve months to September 2025).
So, Paylocity Holding has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 16%.
See our latest analysis for Paylocity Holding
In the above chart we have measured Paylocity Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Paylocity Holding .
What Can We Tell From Paylocity Holding's ROCE Trend?
We like the trends that we're seeing from Paylocity Holding. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 130%. So we're very much inspired by what we're seeing at Paylocity Holding thanks to its ability to profitably reinvest capital.
On a separate but related note, it's important to know that Paylocity Holding has a current liabilities to total assets ratio of 70%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line On Paylocity Holding'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 Paylocity Holding has. Given the stock has declined 26% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for PCTY that compares the share price and estimated value.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.