I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on Powerful Technologies Limited (NSE:POWERFUL) stock.
Purchasing Powerful Technologies gives you an ownership stake in the company. Owing to this, it is important that the underlying business is producing a sufficient amount of income from the capital invested by stockholders. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Therefore, looking at how efficiently Powerful Technologies is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.
ROCE: Explanation and Calculation
As an investor you have many alternative companies to choose from, which means there is an opportunity cost in any investment you make in the form of a foregone investment in another company. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. We’ll look at Powerful Technologies’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. POWERFUL’s ROCE is calculated below:
ROCE Calculation for POWERFUL
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = ₹62m ÷ (₹310m – ₹184m) = 54%
As you can see, POWERFUL earned ₹54.2 from every ₹100 you invested over the previous twelve months. This makes Powerful Technologies exceptionally profitable when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future and is able to either provide solid dividends or reinvestment opportunities, your capital will enlarge at a rapid rate over time.
A deeper look
Powerful Technologies’s relatively strong ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment Powerful Technologies is in a favourable position, but this can change if these factors underperform. Because of this, it is important to look beyond the final value of POWERFUL’s ROCE and understand what is happening to the individual components. Three years ago, POWERFUL’s ROCE was -99%, which means the company’s capital returns have improved. We can see that earnings have increased from -₹144.0k to ₹62m whilst capital employed also increased but to a smaller extent, which means the company has been able to improve ROCE by driving up earnings relative to the capital invested in the business.
Powerful Technologies’s ROCE has increased in the recent past and 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. This makes the company an attractive place to put your money, but ROCE does not tell the whole picture so you need to pay attention to other fundamentals 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. If you’re interested in diving deeper, take a look at what I’ve linked below for further information on these fundamentals and other potential investment opportunities.
- Future Outlook: What are well-informed industry analysts predicting for POWERFUL’s future growth? Take a look at our free research report of analyst consensus for POWERFUL’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Powerful Technologies’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.