Returns At Saregama India (NSE:SAREGAMA) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Saregama India (NSE:SAREGAMA) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Saregama India is:

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

0.13 = ₹2.0b ÷ (₹19b - ₹3.5b) (Based on the trailing twelve months to September 2022).

Thus, Saregama India has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 4.3% generated by the Entertainment industry.

Check out our latest analysis for Saregama India

Above you can see how the current ROCE for Saregama India compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Saregama India here for free.

So How Is Saregama India's ROCE Trending?

We like the trends that we're seeing from Saregama India. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 270% more capital is being employed now too. So we're very much inspired by what we're seeing at Saregama India thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Saregama India can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 378% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Saregama India can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Saregama India you'll probably want to know about.

While Saregama India 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.