The Returns On Capital At PTC Industries (NSE:PTCIL) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating PTC Industries (NSE:PTCIL), we don't think it's current trends fit the mold of a multi-bagger.

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What Is 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. The formula for this calculation on PTC Industries is:

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

0.037 = ₹540m ÷ (₹16b - ₹1.2b) (Based on the trailing twelve months to March 2025).

Therefore, PTC Industries has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

Check out our latest analysis for PTC Industries

Above you can see how the current ROCE for PTC Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for PTC Industries .

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 7.6% five years ago, while capital employed has grown 505%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with PTC Industries' earnings and if they change as a result from the capital raise. Additionally, we found that PTC Industries' most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.

On a related note, PTC Industries has decreased its current liabilities to 7.7% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On PTC Industries' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for PTC Industries. These trends are starting to be recognized by investors since the stock has delivered a 4.2% gain to shareholders who've held over the last year. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

On a final note, we've found 1 warning sign for PTC Industries that we think you should be aware of.

While PTC Industries 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.