Investors Will Want Intellect Design Arena's (NSE:INTELLECT) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Intellect Design Arena (NSE:INTELLECT) and its trend of ROCE, we really liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Intellect Design Arena is:

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

0.16 = ₹3.4b ÷ (₹29b - ₹8.0b) (Based on the trailing twelve months to June 2023).

Therefore, Intellect Design Arena has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% generated by the Software industry.

Check out our latest analysis for Intellect Design Arena

In the above chart we have measured Intellect Design Arena's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Intellect Design Arena.

How Are Returns Trending?

We like the trends that we're seeing from Intellect Design Arena. Over the last five years, returns on capital employed have risen substantially to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 131% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Intellect Design Arena's ROCE

All in all, it's terrific to see that Intellect Design Arena is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Intellect Design Arena can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Intellect Design Arena that you might find interesting.

While Intellect Design Arena 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.