Should We Be Excited About The Trends Of Returns At Rudrabhishek Enterprises (NSE:REPL)?

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Rudrabhishek Enterprises (NSE:REPL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Rudrabhishek Enterprises, this is the formula:

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

0.18 = ₹153m ÷ (₹917m - ₹79m) (Based on the trailing twelve months to December 2020).

Therefore, Rudrabhishek Enterprises has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Professional Services industry average of 8.3% it's much better.

View 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 of past earnings, revenue and cash flow.

So How Is Rudrabhishek Enterprises' ROCE Trending?

When we looked at the ROCE trend at Rudrabhishek Enterprises, we didn't gain much confidence. To be more specific, ROCE has fallen from 23% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Rudrabhishek Enterprises' ROCE

In summary, we're somewhat concerned by Rudrabhishek Enterprises' diminishing returns on increasing amounts of capital. Yet despite these poor fundamentals, the stock has gained a huge 378% over the last year, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you'd like to know about the risks facing Rudrabhishek Enterprises, we've discovered 2 warning signs that you should be aware of.

While Rudrabhishek Enterprises 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. 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.
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