I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on SORIL Infra Resources Limited (NSE:SORILINFRA) stock.
If you purchase a SORILINFRA share you are effectively becoming a partner with many other shareholders. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. Your return is tied to SORILINFRA’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. To understand SORIL Infra Resources’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.
SORIL Infra Resources’s Return On Capital Employed
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if SORIL Infra Resources is good at growing investor capital. I have calculated SORIL Infra Resources’s ROCE for you below:
ROCE Calculation for SORILINFRA
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = ₹173m ÷ (₹3.5b – ₹3.3b) = 78%
As you can see, SORILINFRA earned ₹78.3 from every ₹100 you invested over the previous twelve months. This shows SORIL Infra Resources provides a great return on capital employed that is well above the 15% ROCE that is typically considered to be a strong benchmark. As a result, if SORILINFRA is clever with their reinvestments or dividend payments, investors can grow their capital at an enviable rate over time.
A deeper look
SORILINFRA is efficient with the use of capital, but this is only the case if SORILINFRA continues to maintain the presently healthy ROCE, which will change if the company either earns less or requires more capital to create earnings. Therefore, investors need to be confident in the trend of the inputs in the formula above, so that SORIL Infra Resources will continue the solid returns. Three years ago, SORILINFRA’s ROCE was 13%, which means the company’s capital returns have improved. In this time, earnings have actually fallen from ₹238m to ₹173m, but the use of capital has fallen further due to a greater amount of current liabilities used (meaning the company has used more borrowed money than shareholder capital to produce earnings) , which suggests investor’s ROCE has risen because the company requires less capital to create earnings despite the previous decline in EBT.
SORILINFRA’s investors have enjoyed an upward trend in ROCE and it is currently at a level that makes the company an attractive candidate that is capable of producing solid capital returns, and hence, an attractive return on investment. As an investor this is the type of situation you look for, but return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and management ability. If you don’t pay attention to these factors you cannot be sure if this trend will continue or reverse due to reasons that cannot be seen by looking in the past. SORIL Infra Resources’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- Future Outlook: What are well-informed industry analysts predicting for SORILINFRA’s future growth? Take a look at our free research report of analyst consensus for SORILINFRA’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for SORIL Infra Resources’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.