Genus Power Infrastructures (NSE:GENUSPOWER) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Genus Power Infrastructures (NSE:GENUSPOWER) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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 Genus Power Infrastructures, this is the formula:

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

0.051 = ₹517m ÷ (₹15b - ₹5.0b) (Based on the trailing twelve months to December 2022).

Therefore, Genus Power Infrastructures has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 9.3%.

See our latest analysis for Genus Power Infrastructures

Above you can see how the current ROCE for Genus Power Infrastructures compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Genus Power Infrastructures' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 10% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Genus Power Infrastructures' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Genus Power Infrastructures. And long term investors must be optimistic going forward because the stock has returned a huge 225% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you're still interested in Genus Power Infrastructures it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Genus Power Infrastructures 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.