Slowing Rates Of Return At Raj Television Network (NSE:RAJTV) Leave Little Room For Excitement

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Raj Television Network (NSE:RAJTV) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Raj Television Network, this is the formula:

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

0.03 = ₹48m ÷ (₹1.8b - ₹214m) (Based on the trailing twelve months to December 2023).

So, Raj Television Network has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Media industry average of 11%.

View our latest analysis for Raj Television Network

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'd like to look at how Raj Television Network has performed in the past in other metrics, you can view this free graph of Raj Television Network's past earnings, revenue and cash flow.

The Trend Of ROCE

Over the past five years, Raj Television Network's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Raj Television Network to be a multi-bagger going forward.

What We Can Learn From Raj Television Network's ROCE

In a nutshell, Raj Television Network has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 38% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Raj Television Network, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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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.