Here's What's Concerning About Allied Digital Services' (NSE:ADSL) Returns On Capital

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Allied Digital Services (NSE:ADSL) and its ROCE trend, we weren't exactly thrilled.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Allied Digital Services is:

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

0.033 = ₹237m ÷ (₹9.3b - ₹2.1b) (Based on the trailing twelve months to June 2025).

Therefore, Allied Digital Services has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the IT industry average of 17%.

Check out our latest analysis for Allied Digital Services

In the above chart we have measured Allied Digital Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Allied Digital Services for free.

The Trend Of ROCE

In terms of Allied Digital Services' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 4.2% over the last five years. 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 Allied Digital Services' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Allied Digital Services is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 833% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you'd like to know about the risks facing Allied Digital Services, we've discovered 2 warning signs that you should be aware of.

While Allied Digital Services 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.