These Metrics Don't Make SecureKloud Technologies (NSE:SECURKLOUD) 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? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, SecureKloud Technologies (NSE:SECURKLOUD) we aren't filled with optimism, but let's investigate further.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for SecureKloud Technologies, this is the formula:

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

0.11 = ₹117m ÷ (₹2.4b - ₹1.4b) (Based on the trailing twelve months to December 2020).

Thus, SecureKloud Technologies has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Software industry.

Check out our latest analysis for SecureKloud Technologies

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

So How Is SecureKloud Technologies' ROCE Trending?

The trend of returns that SecureKloud Technologies is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 11% we see today. In addition to that, SecureKloud Technologies is now employing 52% less capital than it was five years ago. The fact that both are shrinking is an indication that the business is going through some tough times. 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.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 56%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 11%. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.

Our Take On SecureKloud Technologies' ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Unsurprisingly then, the stock has dived 86% over the last five years, so investors are recognizing these changes and don't like the company's prospects. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

SecureKloud Technologies does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is significant...

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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