The Returns On Capital At Trigyn Technologies (NSE:TRIGYN) Don't Inspire Confidence

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Trigyn Technologies (NSE:TRIGYN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Our free stock report includes 2 warning signs investors should be aware of before investing in Trigyn Technologies. Read for free now.

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 Trigyn Technologies is:

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

0.037 = ₹265m ÷ (₹8.6b - ₹1.3b) (Based on the trailing twelve months to December 2024).

Thus, Trigyn Technologies has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the IT industry average of 15%.

See our latest analysis for Trigyn 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 Trigyn Technologies.

The Trend Of ROCE

On the surface, the trend of ROCE at Trigyn Technologies doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.7% from 19% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Trigyn Technologies' ROCE

We're a bit apprehensive about Trigyn Technologies because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Yet despite these poor fundamentals, the stock has gained a huge 206% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Trigyn Technologies does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

While Trigyn Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.