Returns On Capital - An Important Metric For Raj Television Network (NSE:RAJTV)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 on that note, Raj Television Network (NSE:RAJTV) 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 Raj Television Network, this is the formula:

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

0.075 = ₹130m ÷ (₹2.0b - ₹287m) (Based on the trailing twelve months to December 2019).

Thus, Raj Television Network has an ROCE of 7.5%. Ultimately, that's a low return and it under-performs the Media industry average of 14%.

See our latest analysis for Raj Television Network

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

How Are Returns Trending?

Raj Television Network's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 24% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Raj Television Network's ROCE

In summary, we're delighted to see that Raj Television Network has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 55% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 2 warning signs for Raj Television Network that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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