The Returns At InfoBeans Technologies (NSE:INFOBEAN) Provide Us With Signs Of What's To Come

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 InfoBeans Technologies (NSE:INFOBEAN) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on InfoBeans Technologies is:

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

0.095 = ₹201m ÷ (₹2.3b - ₹193m) (Based on the trailing twelve months to September 2020).

Therefore, InfoBeans Technologies has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Software industry average of 12%.

View our latest analysis for InfoBeans Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for InfoBeans Technologies' ROCE against it's prior returns. If you'd like to look at how InfoBeans Technologies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From InfoBeans Technologies' ROCE Trend?

On the surface, the trend of ROCE at InfoBeans Technologies doesn't inspire confidence. To be more specific, ROCE has fallen from 30% 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.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for InfoBeans Technologies. Furthermore the stock has climbed 74% over the last three years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 3 warning signs for InfoBeans Technologies that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

If you decide to trade InfoBeans Technologies, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.