Quicktouch Technologies (NSE:QUICKTOUCH) May Have Issues Allocating Its Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Quicktouch Technologies (NSE:QUICKTOUCH) and its ROCE trend, we weren't exactly thrilled.

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What Is 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. To calculate this metric for Quicktouch Technologies, this is the formula:

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

0.053 = ₹79m ÷ (₹1.7b - ₹175m) (Based on the trailing twelve months to December 2024).

Therefore, Quicktouch Technologies has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the IT industry average of 15%.

View our latest analysis for Quicktouch Technologies

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

What Can We Tell From Quicktouch Technologies' ROCE Trend?

On the surface, the trend of ROCE at Quicktouch Technologies doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 5.3%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Quicktouch Technologies has done well to pay down its current liabilities to 11% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Quicktouch Technologies' ROCE

Bringing it all together, while we're somewhat encouraged by Quicktouch Technologies' reinvestment in its own business, we're aware that returns are shrinking. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 77% in the last year. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching Quicktouch Technologies, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Quicktouch 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.

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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.