Salasar Techno Engineering's (NSE:SALASAR) Returns On Capital Not Reflecting Well On The Business

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Salasar Techno Engineering (NSE:SALASAR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Salasar Techno Engineering is:

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

0.11 = ₹918m ÷ (₹17b - ₹8.9b) (Based on the trailing twelve months to June 2025).

Therefore, Salasar Techno Engineering has an ROCE of 11%. In isolation, that's a pretty standard return but against the Construction industry average of 15%, it's not as good.

See our latest analysis for Salasar Techno Engineering

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

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 16% five years ago, while capital employed has grown 281%. That being said, Salasar Techno Engineering raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Salasar Techno Engineering's earnings and if they change as a result from the capital raise.

On a side note, Salasar Techno Engineering's current liabilities are still rather high at 52% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Salasar Techno Engineering. And the stock has done incredibly well with a 450% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing to note, we've identified 2 warning signs with Salasar Techno Engineering and understanding these should be part of your investment process.

While Salasar Techno Engineering may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.