These Return Metrics Don't Make Quick Heal Technologies (NSE:QUICKHEAL) Look Too Strong

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within Quick Heal Technologies (NSE:QUICKHEAL), we weren't too hopeful.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Is Return On Capital Employed (ROCE)?

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 Quick Heal Technologies is:

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

0.011 = ₹49m ÷ (₹5.2b - ₹751m) (Based on the trailing twelve months to December 2024).

Thus, Quick Heal Technologies has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Software industry average of 12%.

Check out our latest analysis for Quick Heal Technologies

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 Quick Heal Technologies' past further, check out this free graph covering Quick Heal Technologies' past earnings, revenue and cash flow .

What Does the ROCE Trend For Quick Heal Technologies Tell Us?

We are a bit anxious about the trends of ROCE at Quick Heal Technologies. The company used to generate 15% on its capital five years ago but it has since fallen noticeably. In addition to that, Quick Heal Technologies is now employing 32% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

What We Can Learn From Quick Heal Technologies' ROCE

To see Quick Heal Technologies reducing the capital employed in the business in tandem with diminishing returns, is concerning. Yet despite these poor fundamentals, the stock has gained a huge 202% over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One more thing: We've identified 3 warning signs with Quick Heal Technologies (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Quick Heal Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

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.