Returns On Capital At Trejhara Solutions (NSE:TREJHARA) Have Stalled

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Trejhara Solutions (NSE:TREJHARA) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Trejhara Solutions is:

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

0.028 = ₹138m ÷ (₹5.9b - ₹983m) (Based on the trailing twelve months to December 2021).

Thus, Trejhara Solutions has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

Check out our latest analysis for Trejhara Solutions

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're interested in investigating Trejhara Solutions' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Trejhara Solutions' ROCE Trending?

Things have been pretty stable at Trejhara Solutions, with its capital employed and returns on that capital staying somewhat the same for the last three years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Trejhara Solutions to be a multi-bagger going forward.

In Conclusion...

In summary, Trejhara Solutions isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Yet to long term shareholders the stock has gifted them an incredible 215% return in the last three years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 2 warning signs with Trejhara Solutions and understanding them should be part of your investment process.

While Trejhara Solutions may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.