DEN Networks' (NSE:DEN) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in DEN Networks' (NSE:DEN) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for DEN Networks, this is the formula:

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

0.012 = ₹415m ÷ (₹39b - ₹4.1b) (Based on the trailing twelve months to June 2024).

Therefore, DEN Networks has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Media industry average of 10%.

Check out our latest analysis for DEN Networks

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

The Trend Of ROCE

Shareholders will be relieved that DEN Networks has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.2% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

Our Take On DEN Networks' ROCE

To bring it all together, DEN Networks has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 25% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

While DEN Networks looks impressive, no company is worth an infinite price. The intrinsic value infographic for DEN helps visualize whether it is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

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