The Trends At Globaltruck Management (MCX:GTRK) That You Should Know About

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Globaltruck Management (MCX:GTRK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is 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. To calculate this metric for Globaltruck Management, this is the formula:

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

0.11 = ₽861m ÷ (₽9.9b - ₽2.1b) (Based on the trailing twelve months to December 2019).

Therefore, Globaltruck Management has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Transportation industry.

View our latest analysis for Globaltruck Management

Above you can see how the current ROCE for Globaltruck Management 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.

How Are Returns Trending?

On the surface, the trend of ROCE at Globaltruck Management doesn't inspire confidence. Over the last five years, returns on capital have decreased to 11% from 18% five years ago. 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.

On a related note, Globaltruck Management has decreased its current liabilities to 22% 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.

Our Take On Globaltruck Management's 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 Globaltruck Management. However, despite the promising trends, the stock has fallen 68% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we found 4 warning signs for Globaltruck Management (1 is potentially serious) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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