The Return Trends At Pritish Nandy Communications (NSE:PNC) Look Promising

By
Simply Wall St
Published
May 11, 2022
NSEI:PNC
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Pritish Nandy Communications (NSE:PNC) looks quite promising in regards to its trends of return on capital.

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 Pritish Nandy Communications:

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

0.0041 = ₹3.6m ÷ (₹962m - ₹81m) (Based on the trailing twelve months to March 2022).

Therefore, Pritish Nandy Communications has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 4.2%.

Check out our latest analysis for Pritish Nandy Communications

roce
NSEI:PNC Return on Capital Employed May 11th 2022

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Pritish Nandy Communications is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.4%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

In Conclusion...

In summary, we're delighted to see that Pritish Nandy Communications has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 69% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Pritish Nandy Communications does have some risks, we noticed 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

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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