IndiaMART InterMESH (NSE:INDIAMART) Hasn't Managed To Accelerate Its Returns

By
Simply Wall St
Published
February 19, 2022
NSEI:INDIAMART
Source: Shutterstock

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of IndiaMART InterMESH (NSE:INDIAMART) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on IndiaMART InterMESH is:

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

0.15 = ₹3.2b ÷ (₹27b - ₹5.5b) (Based on the trailing twelve months to December 2021).

So, IndiaMART InterMESH has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.8% generated by the Trade Distributors industry.

See our latest analysis for IndiaMART InterMESH

roce
NSEI:INDIAMART Return on Capital Employed February 19th 2022

Above you can see how the current ROCE for IndiaMART InterMESH compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past four years, ROCE has remained relatively flat at around 15% and the business has deployed 1,954% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that IndiaMART InterMESH has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, IndiaMART InterMESH has done well to reduce current liabilities to 21% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From IndiaMART InterMESH's ROCE

In the end, IndiaMART InterMESH has proven its ability to adequately reinvest capital at good rates of return. However, despite the favorable fundamentals, the stock has fallen 45% over the last year, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a separate note, we've found 3 warning signs for IndiaMART InterMESH you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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