There Are Reasons To Feel Uneasy About Matrimony.com's (NSE:MATRIMONY) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Matrimony.com (NSE:MATRIMONY), we don't think it's current trends fit the mold of a multi-bagger.

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 Matrimony.com:

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

0.13 = ₹416m ÷ (₹4.5b - ₹1.4b) (Based on the trailing twelve months to March 2021).

Therefore, Matrimony.com has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Interactive Media and Services industry average of 11% it's much better.

Check out our latest analysis for Matrimony.com

Above you can see how the current ROCE for Matrimony.com 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 report on analyst forecasts for the company.

The Trend Of ROCE

On the surface, the trend of ROCE at Matrimony.com doesn't inspire confidence. To be more specific, ROCE has fallen from 41% over the last three years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Matrimony.com is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 49% over the last three years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Matrimony.com it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Matrimony.com isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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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