Investors Met With Slowing Returns on Capital At Indus Towers (NSE:INDUSTOWER)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Indus Towers' (NSE:INDUSTOWER) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Indus Towers is:

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

0.12 = ₹44b ÷ (₹466b - ₹82b) (Based on the trailing twelve months to March 2023).

Thus, Indus Towers has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Telecom industry average it falls behind.

Check out our latest analysis for Indus Towers

In the above chart we have measured Indus Towers' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Indus Towers here for free.

SWOT Analysis for Indus Towers

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 115% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Indus Towers' ROCE

To sum it up, Indus Towers has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 36%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

On a final note, we've found 2 warning signs for Indus Towers that we think you should be aware of.

While Indus Towers 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.