Vakrangee's (NSE:VAKRANGEE) Returns On Capital Not Reflecting Well On The Business

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Vakrangee (NSE:VAKRANGEE) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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 Vakrangee is:

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

0.031 = ₹855m ÷ (₹30b - ₹1.9b) (Based on the trailing twelve months to September 2022).

Therefore, Vakrangee has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the IT industry average of 12%.

See our latest analysis for Vakrangee

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vakrangee's ROCE against it's prior returns. If you're interested in investigating Vakrangee's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Vakrangee's ROCE Trend?

When we looked at the ROCE trend at Vakrangee, we didn't gain much confidence. Around five years ago the returns on capital were 44%, but since then they've fallen to 3.1%. 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

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Vakrangee. But since the stock has dived 94% in the last five years, there could be other drivers that are influencing the business' outlook. Therefore, we'd suggest researching the stock further to uncover more about the business.

On a final note, we found 2 warning signs for Vakrangee (1 can't be ignored) you should be aware of.

While Vakrangee 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.