There Are Reasons To Feel Uneasy About Quicktouch Technologies' (NSE:QUICKTOUCH) Returns On Capital

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Quicktouch Technologies (NSE:QUICKTOUCH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. 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)

0.11 = ₹92m ÷ (₹1.2b - ₹304m) (Based on the trailing twelve months to March 2024).

So, Quicktouch Technologies has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.

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'd like to look at how Quicktouch Technologies has performed in the past in other metrics, you can view this free graph of Quicktouch Technologies' past earnings, revenue and cash flow.

What Does the ROCE Trend For Quicktouch Technologies Tell Us?

When we looked at the ROCE trend at Quicktouch Technologies, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Quicktouch Technologies' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Quicktouch Technologies is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 1.1% over the last year. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

On a separate note, we've found 3 warning signs for Quicktouch Technologies you'll probably want to know about.

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.

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.

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