Returns On Capital At Sindhu Trade Links (NSE:SINDHUTRAD) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Sindhu Trade Links (NSE:SINDHUTRAD) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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 Sindhu Trade Links is:

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

0.019 = ₹737m ÷ (₹47b - ₹7.4b) (Based on the trailing twelve months to March 2024).

So, Sindhu Trade Links has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 9.8%.

See our latest analysis for Sindhu Trade Links

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

So How Is Sindhu Trade Links' ROCE Trending?

When we looked at the ROCE trend at Sindhu Trade Links, we didn't gain much confidence. To be more specific, ROCE has fallen from 4.0% over the last five years. 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.

What We Can Learn From Sindhu Trade Links' 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 Sindhu Trade Links. And there could be an opportunity here if other metrics look good too, because the stock has declined 12% in the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing, we've spotted 1 warning sign facing Sindhu Trade Links that you might find interesting.

While Sindhu Trade Links 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.