Allsec Technologies (NSE:ALLSEC) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while Allsec Technologies (NSE:ALLSEC) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Allsec Technologies is:

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

0.22 = ₹585m ÷ (₹3.0b - ₹410m) (Based on the trailing twelve months to December 2021).

Thus, Allsec Technologies has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 9.4%.

View our latest analysis for Allsec Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Allsec Technologies' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Allsec Technologies, check out these free graphs here.

How Are Returns Trending?

On the surface, the trend of ROCE at Allsec Technologies doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 50% where it was five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Allsec Technologies. Furthermore the stock has climbed 50% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we found 4 warning signs for Allsec Technologies (1 shouldn't be ignored) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.