Returns At Career Point (NSE:CAREERP) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Career Point (NSE:CAREERP) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Career Point:

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

0.052 = ₹257m ÷ (₹5.2b - ₹238m) (Based on the trailing twelve months to March 2022).

Therefore, Career Point has an ROCE of 5.2%. In absolute terms, that's a low return, but it's much better than the Consumer Services industry average of 1.0%.

View our latest analysis for Career Point

Historical performance is a great place to start when researching a stock so above you can see the gauge for Career Point's ROCE against it's prior returns. If you'd like to look at how Career Point has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Career Point's ROCE Trending?

There are better returns on capital out there than what we're seeing at Career Point. Over the past five years, ROCE has remained relatively flat at around 5.2% and the business has deployed 25% more capital into its operations. 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 4.6% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line 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. Although the market must be expecting these trends to improve because the stock has gained 46% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing: We've identified 3 warning signs with Career Point (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Career Point may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.