This article is intended for those of you who are at the beginning of your investing journey and looking to gauge the potential return on investment in TV18 Broadcast Limited (NSE:TV18BRDCST).
TV18 Broadcast stock represents an ownership share in the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. 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 TV18 Broadcast’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.
TV18 Broadcast’s Return On Capital Employed
As an investor you have many alternative companies to choose from, which means there is an opportunity cost in any investment you make in the form of a foregone investment in another company. 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 TV18 Broadcast is good at growing investor capital. Take a look at the formula box beneath:
ROCE Calculation for TV18BRDCST
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = ₹1.1b ÷ (₹74.4b – ₹33.2b) = 2.7%
TV18BRDCST’s 2.7% ROCE means that for every ₹100 you invest, the company creates ₹2.7. Comparing this to a healthy 15% benchmark shows TV18 Broadcast is currently unable to return a satisfactory amount to owners for the use of their capital, which isn’t good for investors who have forgone other potentially solid companies.
What is causing this?
TV18 Broadcast’s relatively poor ROCE is tied to the movement in two factors that change over time: earnings and capital requirements. At the moment TV18 Broadcast is in an adverse position, but this can change if these factors improve. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Three years ago, TV18BRDCST’s ROCE was 4.5%, which means the company’s capital returns have worsened. In this time, earnings have fallen from ₹1.6b to ₹1.1b and capital employed has increased due to a rise in total assets employed , which means the company’s ROCE has shrunk as a result of falling earnings and simultaneous increases in capital requirements.
TV18 Broadcast’s ROCE has decreased in the recent past and is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. However, it is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as future prospects and management ability. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate TV18BRDCST or move on to other alternatives.
- Future Outlook: What are well-informed industry analysts predicting for TV18BRDCST’s future growth? Take a look at our free research report of analyst consensus for TV18BRDCST’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for TV18 Broadcast’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.