The Returns At Rail Vikas Nigam (NSE:RVNL) Aren't Growing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Rail Vikas Nigam (NSE:RVNL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Rail Vikas Nigam, this is the formula:

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

0.067 = ₹9.9b ÷ (₹205b - ₹57b) (Based on the trailing twelve months to June 2025).

Therefore, Rail Vikas Nigam has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 16%.

See our latest analysis for Rail Vikas Nigam

In the above chart we have measured Rail Vikas Nigam's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Rail Vikas Nigam .

What Can We Tell From Rail Vikas Nigam's ROCE Trend?

There are better returns on capital out there than what we're seeing at Rail Vikas Nigam. Over the past five years, ROCE has remained relatively flat at around 6.7% and the business has deployed 53% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Rail Vikas Nigam's ROCE

Long story short, while Rail Vikas Nigam has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 2,120% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 1 warning sign with Rail Vikas Nigam and understanding this should be part of your investment process.

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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.