Paramount Communications (NSE:PARACABLES) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Paramount Communications (NSE:PARACABLES) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Paramount Communications, this is the formula:

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

0.14 = ₹989m ÷ (₹8.3b - ₹1.4b) (Based on the trailing twelve months to September 2024).

So, Paramount Communications has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 16% generated by the Electrical industry.

Check out our latest analysis for Paramount Communications

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

What Can We Tell From Paramount Communications' ROCE Trend?

The trends we've noticed at Paramount Communications are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 93%. So we're very much inspired by what we're seeing at Paramount Communications thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 17%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Paramount Communications has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

All in all, it's terrific to see that Paramount Communications is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Paramount Communications can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Paramount Communications (of which 1 doesn't sit too well with us!) that you should know about.

While Paramount 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.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.