Here's What To Make Of Career Point's (NSE:CAREERP) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Career Point (NSE:CAREERP) 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 who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Career Point, this is the formula:

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

0.057 = ₹298m ÷ (₹5.4b - ₹122m) (Based on the trailing twelve months to June 2022).

Thus, Career Point has an ROCE of 5.7%. On its own that's a low return, but compared to the average of 2.4% generated by the Consumer Services industry, it's much better.

Our analysis indicates that CAREERP is potentially undervalued!

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 Career Point's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Career Point Tell Us?

There are better returns on capital out there than what we're seeing at Career Point. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 5.7%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Career Point has done well to reduce current liabilities to 2.3% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Career Point's ROCE

As we've seen above, Career Point's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 7.5% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Career Point, we've spotted 3 warning signs, and 1 of them is potentially serious.

While Career Point 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. 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.