I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on Radaan Mediaworks India Limited (NSEI:RADAAN) stock.
Buying Radaan Mediaworks India makes you a partial owner of the company. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. To understand Radaan Mediaworks India’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.Check out our latest analysis for Radaan Mediaworks India
ROCE: Explanation and Calculation
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Radaan Mediaworks India is good at growing investor capital. I have calculated Radaan Mediaworks India’s ROCE for you below:
ROCE Calculation for RADAAN
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = ₹7.94M ÷ (₹374.92M – ₹110.34M) = 3.00%
The calculation above shows that RADAAN’s earnings were 3.00% of capital employed. This makes Radaan Mediaworks India disappointing when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future, investor capital may be able to compound over time, but not to standard that investors should be aiming for.
What is causing this?
The underperforming ROCE is not ideal for Radaan Mediaworks India investors if the company is unable to turn things around. But if the underlying variables (earnings and capital employed) improve, RADAAN’s ROCE may increase, in which case your portfolio could benefit from holding the company. Because of this, it is important to look beyond the final value of RADAAN’s ROCE and understand what is happening to the individual components. Three years ago, RADAAN’s ROCE was 2.90%, which means the company’s capital returns have improved. With this, the current earnings of ₹7.94M improved from ₹6.76M and capital employed also increased but to a smaller extent, which means the company has been able to improve ROCE by driving up earnings relative to the capital invested in the business.
Despite RADAAN’s current ROCE remains at an unattractive level, the company has triggered an upward trend over the recent past which could signal an opportunity for a solid return on investment in the long term. It is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as the management team and valuation to determine if an opportunity exists that isn’t made apparent by looking at past data. If you’re interested in diving deeper, take a look at what I’ve linked below for further information on these fundamentals and other potential investment opportunities.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Radaan Mediaworks India’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Valuation: What is RADAAN worth today? Despite the unattractive ROCE, is the outlook correctly factored in to the price? The intrinsic value infographic in our free research report helps visualize whether RADAAN is currently undervalued by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.