Network18 Media & Investments (NSE:NETWORK18) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Network18 Media & Investments (NSE:NETWORK18) so let's look a bit deeper.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Network18 Media & Investments, this is the formula:

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

0.17 = ₹8.2b ÷ (₹91b - ₹43b) (Based on the trailing twelve months to June 2022).

Therefore, Network18 Media & Investments has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 12% it's much better.

View our latest analysis for Network18 Media & Investments

Historical performance is a great place to start when researching a stock so above you can see the gauge for Network18 Media & Investments' ROCE against it's prior returns. If you're interested in investigating Network18 Media & Investments' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Network18 Media & Investments' ROCE Trend?

Network18 Media & Investments has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 17% which is a sight for sore eyes. Not only that, but the company is utilizing 65% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a separate but related note, it's important to know that Network18 Media & Investments has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To the delight of most shareholders, Network18 Media & Investments has now broken into profitability. And with a respectable 47% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Network18 Media & Investments looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NETWORK18 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.