Sasken Technologies (NSE:SASKEN) May Have Issues Allocating Its Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after briefly looking over the numbers, we don't think Sasken Technologies (NSE:SASKEN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Sasken Technologies is:

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

0.02 = ₹171m ÷ (₹11b - ₹2.8b) (Based on the trailing twelve months to September 2025).

So, Sasken Technologies has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Software industry average of 11%.

See our latest analysis for Sasken Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sasken 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 Sasken Technologies.

So How Is Sasken Technologies' ROCE Trending?

On the surface, the trend of ROCE at Sasken Technologies doesn't inspire confidence. Around five years ago the returns on capital were 17%, but since then they've fallen to 2.0%. 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.

The Bottom Line On Sasken Technologies' ROCE

While returns have fallen for Sasken Technologies in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 76% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

Sasken Technologies does have some risks, we noticed 4 warning signs (and 2 which are significant) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.