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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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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Return On Capital Employed (ROCE): What Is It?

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. 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%.

See our latest analysis for Quicktouch 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Quicktouch Technologies.

What The Trend Of ROCE Can Tell Us

In terms of Quicktouch Technologies' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% over the last five years. However it looks like Quicktouch Technologies might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

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.

What We Can Learn From Quicktouch Technologies' ROCE

To conclude, we've found that Quicktouch Technologies is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 61% in the last year. Therefore based on the analysis done in this article, we don't think Quicktouch Technologies has the makings of a multi-bagger.

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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.