Here's What To Make Of OnMobile Global's (NSE:ONMOBILE) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can 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. Although, when we looked at OnMobile Global (NSE:ONMOBILE), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for OnMobile Global:

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

0.063 = ₹410m ÷ (₹9.1b - ₹2.6b) (Based on the trailing twelve months to December 2021).

So, OnMobile Global has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Software industry average of 12%.

See our latest analysis for OnMobile Global

Historical performance is a great place to start when researching a stock so above you can see the gauge for OnMobile Global's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of OnMobile Global, check out these free graphs here.

What Does the ROCE Trend For OnMobile Global Tell Us?

Things have been pretty stable at OnMobile Global, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if OnMobile Global doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, OnMobile Global has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 139% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching OnMobile Global, you might be interested to know about the 3 warning signs that our analysis has discovered.

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.

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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.