Infibeam Avenues' (NSE:INFIBEAM) Returns On Capital Not Reflecting Well On The Business

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Infibeam Avenues (NSE:INFIBEAM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. Analysts use this formula to calculate it for Infibeam Avenues:

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

0.027 = ₹823m ÷ (₹39b - ₹7.8b) (Based on the trailing twelve months to March 2022).

Therefore, Infibeam Avenues has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the IT industry average of 10%.

View our latest analysis for Infibeam Avenues

Above you can see how the current ROCE for Infibeam Avenues compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Infibeam Avenues.

So How Is Infibeam Avenues' ROCE Trending?

When we looked at the ROCE trend at Infibeam Avenues, we didn't gain much confidence. To be more specific, ROCE has fallen from 5.6% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for Infibeam Avenues in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 53% in 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.

Infibeam Avenues does have some risks though, and we've spotted 1 warning sign for Infibeam Avenues that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.