Returns On Capital Are Showing Encouraging Signs At Sastasundar Ventures (NSE:SASTASUNDR)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Sastasundar Ventures (NSE:SASTASUNDR) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sastasundar Ventures is:

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

0.042 = ₹459m ÷ (₹12b - ₹932m) (Based on the trailing twelve months to December 2023).

So, Sastasundar Ventures has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 13%.

See our latest analysis for Sastasundar Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sastasundar Ventures' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sastasundar Ventures.

What Does the ROCE Trend For Sastasundar Ventures Tell Us?

Sastasundar Ventures has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.2% on its capital. Not only that, but the company is utilizing 455% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Sastasundar Ventures' ROCE

Overall, Sastasundar Ventures gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for SASTASUNDR on our platform that is definitely worth checking out.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.