Will TV18 Broadcast's (NSE:TV18BRDCST) Growth In ROCE Persist?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at TV18 Broadcast (NSE:TV18BRDCST) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 TV18 Broadcast is:

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

0.12 = ₹5.7b ÷ (₹82b - ₹32b) (Based on the trailing twelve months to September 2020).

So, TV18 Broadcast has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Media industry.

See our latest analysis for TV18 Broadcast

Above you can see how the current ROCE for TV18 Broadcast 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 TV18 Broadcast here for free.

The Trend Of ROCE

Investors would be pleased with what's happening at TV18 Broadcast. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 35%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 40% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line

All in all, it's terrific to see that TV18 Broadcast is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 24% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While TV18 Broadcast may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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