Automobiles News

Endurance Technologies (NSE:ENDURANCE) Might Be Having Difficulty Using Its Capital Effectively


If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. 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 Endurance Technologies (NSE:ENDURANCE) and its ROCE trend, we weren’t exactly thrilled.

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

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 Endurance Technologies, this is the formula:

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

0.13 = ₹5.8b ÷ (₹65b – ₹20b) (Based on the trailing twelve months to September 2022).

So, Endurance Technologies has an ROCE of 13%. By itself that’s a normal return on capital and it’s in line with the industry’s average returns of 13%.

View our latest analysis for Endurance Technologies

NSEI:ENDURANCE Return on Capital Employed January 19th 2023

Above you can see how the current ROCE for Endurance Technologies compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Endurance Technologies here for free.

What The Trend Of ROCE Can Tell Us

In terms of Endurance Technologies’ historical ROCE movements, the trend isn’t fantastic. Around five years ago the returns on capital were 21%, but since then they’ve fallen to 13%. However it looks like Endurance Technologies might be reinvesting for long term growth because while capital employed has increased, the company’s sales haven’t changed much in the last 12 months. It’s worth keeping an eye on the company’s earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion…

Bringing it all together, while we’re somewhat encouraged by Endurance Technologies’ reinvestment in its own business, we’re aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 18% to shareholders over the last five years. As a result, if you’re hunting for a multi-bagger, we think you’d have more luck elsewhere.

One more thing to note, we’ve identified 1 warning sign with Endurance Technologies and understanding it should be part of your investment process.

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.

Valuation is complex, but we’re helping make it simple.

Find out whether Endurance Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.



Source link