Can Pritish Nandy Communications (NSE:PNC) Continue To Grow Its Returns On Capital?

If you're looking for a multi-bagger, there's a few things to 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Pritish Nandy Communications (NSE:PNC) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Pritish Nandy Communications, this is the formula:

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

0.011 = ₹11m ÷ (₹1.0b - ₹93m) (Based on the trailing twelve months to March 2020).

Thus, Pritish Nandy Communications has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 6.9%.

Check out our latest analysis for Pritish Nandy Communications

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pritish Nandy Communications' ROCE against it's prior returns. If you're interested in investigating Pritish Nandy Communications' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Pritish Nandy Communications Tell Us?

Pritish Nandy Communications has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.1% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

To bring it all together, Pritish Nandy Communications has done well to increase the returns it's generating from its capital employed. Given the stock has declined 16% in the last five years, there could be a chance of a good investment here if the valuation makes sense. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 3 warning signs for Pritish Nandy Communications (1 is concerning) you should be aware of.

While Pritish Nandy Communications isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you decide to trade Pritish Nandy Communications, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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