The Returns On Capital At IntraSoft Technologies (NSE:ISFT) Don't Inspire Confidence

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating IntraSoft Technologies (NSE:ISFT), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for IntraSoft Technologies:

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

0.049 = ₹163m ÷ (₹3.7b - ₹356m) (Based on the trailing twelve months to June 2023).

So, IntraSoft Technologies has an ROCE of 4.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.0%.

View our latest analysis for IntraSoft Technologies

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 want to delve into the historical earnings, revenue and cash flow of IntraSoft Technologies, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of IntraSoft Technologies' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 4.9% from 6.4% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From IntraSoft Technologies' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for IntraSoft Technologies. These growth trends haven't led to growth returns though, since the stock has fallen 35% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we found 2 warning signs for IntraSoft Technologies (1 doesn't sit too well with us) you should be aware of.

While IntraSoft Technologies 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.