The Returns On Capital At Sun TV Network (NSE:SUNTV) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Sun TV Network (NSE:SUNTV), it does have a high ROCE right now, but lets see how returns are trending.

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. The formula for this calculation on Sun TV Network is:

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

0.22 = ₹21b ÷ (₹101b - ₹8.2b) (Based on the trailing twelve months to June 2023).

Therefore, Sun TV Network has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Media industry average of 9.0%.

See our latest analysis for Sun TV Network

In the above chart we have measured Sun TV Network's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Sun TV Network.

What Can We Tell From Sun TV Network's ROCE Trend?

When we looked at the ROCE trend at Sun TV Network, we didn't gain much confidence. While it's comforting that the ROCE is high, five years ago it was 35%. However it looks like Sun TV Network might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Sun TV Network's ROCE

To conclude, we've found that Sun TV Network is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 3.9% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Like most companies, Sun TV Network does come with some risks, and we've found 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.