Pegasystems Inc (PEGA)
Return on total capital
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Earnings before interest and tax (EBIT) | US$ in thousands | 149,471 | 102,316 | -154,005 | -136,602 | -105,533 |
| Long-term debt | US$ in thousands | — | — | — | — | — |
| Total stockholders’ equity | US$ in thousands | 585,480 | 353,838 | 130,843 | 416,088 | 542,172 |
| Return on total capital | 25.53% | 28.92% | -117.70% | -32.83% | -19.46% |
December 31, 2024 calculation
Return on total capital = EBIT ÷ (Long-term debt + Total stockholders’ equity)
= $149,471K ÷ ($—K + $585,480K)
= 25.53%
The analysis of Pegasystems Inc.'s return on total capital (ROTC) over the period from December 31, 2020, to December 31, 2024, reveals significant fluctuations, reflecting varied financial performance and investment efficiency during this timeframe.
In 2020, the company exhibited a negative ROTC of -19.46%, indicating that the company's operations and investments during this period were not generating sufficient returns to cover the cost of total capital employed, resulting in an overall value destruction. This negative figure persisted and worsened in 2021, with the ROTC declining to -32.83%, suggesting increased inefficiency or heightened challenges impacting the company's ability to generate adequate returns on its capital.
The deterioration became more pronounced in 2022, with the ROTC plunging to -117.70%. Such a steep decline signifies that the company's performance was considerably below the cost of capital, likely reflecting substantial operating losses or impairments, possibly due to strategic missteps, market challenges, or extraordinary items impacting profitability and asset utilization.
However, a notable turnaround is observed in 2023, when the ROTC shifts to a positive 28.92%, indicating that Pegasystems Inc. managed to generate returns exceeding the total capital during this year. This transition from negative to positive ROTC suggests a significant improvement in operational efficiency, revenue generation, cost management, or a combination of these factors. The company's ability to produce a positive return on capital would have contributed to its valuation and investor confidence during this period.
The positive trend continues into 2024, with the ROTC slightly decreasing to 25.53%. Although marginally lower than the previous year, the figure sustains a healthy level of profitability relative to the total capital employed, signaling consistent operational performance and effective management of resources.
Overall, the company's return on total capital over this four-year period illustrates a sharp decline prior to 2023, followed by a robust recovery and stabilization in subsequent years. The positive figures from 2023 onward suggest a strategic or operational turnaround, enabling Pegasystems Inc. to generate meaningful returns on total capital, with improvements reflecting better management, market positioning, and possibly enhancements in product or service offerings.
Peer comparison
Dec 31, 2024