Hathway Cable and Datacom's (NSE:HATHWAY) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Speaking of which, we noticed some great changes in Hathway Cable and Datacom's (NSE:HATHWAY) returns on capital, so let's have a look.

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 Hathway Cable and Datacom is:

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

0.041 = ₹1.7b ÷ (₹47b - ₹5.6b) (Based on the trailing twelve months to September 2021).

Thus, Hathway Cable and Datacom has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Media industry average of 13%.

View our latest analysis for Hathway Cable and Datacom

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 Hathway Cable and Datacom's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Hathway Cable and Datacom's ROCE Trending?

We're delighted to see that Hathway Cable and Datacom is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 4.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Hathway Cable and Datacom is utilizing 98% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Hathway Cable and Datacom has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Hathway Cable and Datacom's ROCE

Long story short, we're delighted to see that Hathway Cable and Datacom's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 32% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing Hathway Cable and Datacom that you might find interesting.

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.

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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