Returns On Capital At Rudrabhishek Enterprises (NSE:REPL) Have Hit The Brakes

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Rudrabhishek Enterprises (NSE:REPL) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Rudrabhishek Enterprises:

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

0.15 = ₹203m ÷ (₹1.9b - ₹535m) (Based on the trailing twelve months to September 2024).

Therefore, Rudrabhishek Enterprises has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 11% it's much better.

See our latest analysis for Rudrabhishek Enterprises

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Rudrabhishek Enterprises' past further, check out this free graph covering Rudrabhishek Enterprises' past earnings, revenue and cash flow.

What Does the ROCE Trend For Rudrabhishek Enterprises Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 89% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that Rudrabhishek Enterprises has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 29% of total assets, this reported ROCE would probably be less than15% because total capital employed would be higher.The 15% ROCE could be even lower if current liabilities weren't 29% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

In Conclusion...

To sum it up, Rudrabhishek Enterprises has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 950% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Rudrabhishek Enterprises does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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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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.