Our Take On The Returns On Capital At CESC Ventures (NSE:CESCVENT)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. In light of that, when we looked at CESC Ventures (NSE:CESCVENT) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for CESC Ventures, this is the formula:

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

0.068 = ₹3.2b ÷ (₹61b - ₹13b) (Based on the trailing twelve months to September 2020).

Therefore, CESC Ventures has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the IT industry average of 11%.

Check out our latest analysis for CESC Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for CESC Ventures' ROCE against it's prior returns. If you're interested in investigating CESC Ventures' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of CESC Ventures' historical ROCE trend, it doesn't exactly demand attention. Over the past two years, ROCE has remained relatively flat at around 6.8% and the business has deployed 22% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In conclusion, CESC Ventures has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 13% over the last year, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing CESC Ventures that you might find interesting.

While CESC Ventures 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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This article by Simply Wall St is general in nature. 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.
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