Investors Met With Slowing Returns on Capital At Ducon Infratechnologies (NSE:DUCON)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Ducon Infratechnologies' (NSE:DUCON) ROCE trend, we were pretty happy with what we saw.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Ducon Infratechnologies, this is the formula:

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

0.15 = ₹277m ÷ (₹3.5b - ₹1.7b) (Based on the trailing twelve months to December 2024).

Therefore, Ducon Infratechnologies has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 12% it's much better.

View our latest analysis for Ducon Infratechnologies

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'd like to look at how Ducon Infratechnologies has performed in the past in other metrics, you can view this free graph of Ducon Infratechnologies' past earnings, revenue and cash flow .

So How Is Ducon Infratechnologies' ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 97% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 48% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line

To sum it up, Ducon Infratechnologies has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 151% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 2 warning signs with Ducon Infratechnologies (at least 1 which is significant) , and understanding these would certainly be useful.

While Ducon Infratechnologies 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.