Returns On Capital Are Showing Encouraging Signs At OnMobile Global (NSE:ONMOBILE)

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in OnMobile Global's (NSE:ONMOBILE) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.016 = ₹109m ÷ (₹8.9b - ₹2.2b) (Based on the trailing twelve months to March 2024).

So, OnMobile Global has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Software industry average of 11%.

View our latest analysis for OnMobile Global

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're interested in investigating OnMobile Global's past further, check out this free graph covering OnMobile Global's past earnings, revenue and cash flow.

What Can We Tell From OnMobile Global's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at OnMobile Global promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 122% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To bring it all together, OnMobile Global has done well to increase the returns it's generating from its capital employed. And a remarkable 225% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 2 warning signs we've spotted with OnMobile Global (including 1 which makes us a bit uncomfortable) .

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.

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