Raj Television Network (NSE:RAJTV) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Raj Television Network (NSE:RAJTV) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Raj Television Network:

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

0.038 = ₹60m ÷ (₹2.0b - ₹393m) (Based on the trailing twelve months to March 2021).

Thus, Raj Television Network has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Media industry average of 13%.

View our latest analysis for Raj Television Network

Historical performance is a great place to start when researching a stock so above you can see the gauge for Raj Television Network's ROCE against it's prior returns. If you'd like to look at how Raj Television Network has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Raj Television Network Tell Us?

Raj Television Network has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 3.8% on its capital, because five years ago it was incurring losses. 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. 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 Key Takeaway

In summary, we're delighted to see that Raj Television Network has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 33% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 2 warning signs for Raj Television Network you'll probably want to know about.

While Raj Television Network isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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