The Returns On Capital At Info Edge (India) (NSE:NAUKRI) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Info Edge (India) (NSE:NAUKRI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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 Info Edge (India) is:

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

0.017 = ₹8.5b ÷ (₹502b - ₹14b) (Based on the trailing twelve months to December 2024).

Thus, Info Edge (India) has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 12%.

Check out our latest analysis for Info Edge (India)

Above you can see how the current ROCE for Info Edge (India) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Info Edge (India) .

The Trend Of ROCE

In terms of Info Edge (India)'s historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.7% from 14% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, Info Edge (India) has done well to pay down its current liabilities to 2.8% of total assets. So we could link some of this to the decrease in ROCE. 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.

What We Can Learn From Info Edge (India)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Info Edge (India) is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 188% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 1 warning sign for Info Edge (India) you'll probably want to know about.

While Info Edge (India) 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.