Will The ROCE Trend At CESC Ventures (NSE:CESCVENT) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in CESC Ventures' (NSE:CESCVENT) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on CESC Ventures is:

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

0.053 = ₹2.5b ÷ (₹62b - ₹15b) (Based on the trailing twelve months to March 2020).

Thus, CESC Ventures has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the IT industry average of 14%.

See our latest analysis for CESC Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for CESC Ventures' ROCE against it's prior returns. If you'd like to look at how CESC Ventures has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From CESC Ventures' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last two years to 5.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 27%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that CESC Ventures is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 61% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 2 warning signs with CESC Ventures and understanding them should be part of your investment process.

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

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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.
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