Will The ROCE Trend At Pritish Nandy Communications (NSE:PNC) Continue?

There are a few key trends to look for if we want to identify the next 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. So on that note, Pritish Nandy Communications (NSE:PNC) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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)

0.015 = ₹14m ÷ (₹1.0b - ₹81m) (Based on the trailing twelve months to September 2020).

Therefore, Pritish Nandy Communications has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 3.6%.

View our latest analysis for Pritish Nandy Communications

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 want to delve into the historical earnings, revenue and cash flow of Pritish Nandy Communications, check out these free graphs here.

So How Is Pritish Nandy Communications' ROCE Trending?

Pritish Nandy Communications has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.5% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Pritish Nandy Communications has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

To sum it up, Pritish Nandy Communications is collecting higher returns from the same amount of capital, and that's impressive. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Pritish Nandy Communications (of which 1 is significant!) that 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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