Some Investors May Be Worried About Trust Fintech's (NSE:TRUST) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Trust Fintech (NSE:TRUST), we don't think it's current trends fit the mold of a multi-bagger.

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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. The formula for this calculation on Trust Fintech is:

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

0.063 = ₹69m ÷ (₹1.2b - ₹79m) (Based on the trailing twelve months to March 2025).

Therefore, Trust Fintech has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Software industry average of 12%.

Check out our latest analysis for Trust Fintech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Trust Fintech's ROCE against it's prior returns. If you'd like to look at how Trust Fintech has performed in the past in other metrics, you can view this free graph of Trust Fintech's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Trust Fintech's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. 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.

On a side note, Trust Fintech has done well to pay down its current liabilities to 6.8% 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. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for Trust Fintech have fallen, meanwhile the business is employing more capital than it was five years ago. This could explain why the stock has sunk a total of 78% in the last year. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Trust Fintech, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

While Trust Fintech 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.