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Investors Could Be Concerned With Adani Ports and Special Economic Zone’s (NSE:ADANIPORTS) Returns On Capital


What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Adani Ports and Special Economic Zone (NSE:ADANIPORTS) and its ROCE trend, we weren’t exactly thrilled.

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. To calculate this metric for Adani Ports and Special Economic Zone, this is the formula:

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

0.092 = ₹83b ÷ (₹998b – ₹90b) (Based on the trailing twelve months to September 2022).

Thus, Adani Ports and Special Economic Zone has an ROCE of 9.2%. Even though it’s in line with the industry average of 9.2%, it’s still a low return by itself.

View our latest analysis for Adani Ports and Special Economic Zone

NSEI:ADANIPORTS Return on Capital Employed January 7th 2023

Above you can see how the current ROCE for Adani Ports and Special Economic Zone 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.

So How Is Adani Ports and Special Economic Zone’s ROCE Trending?

When we looked at the ROCE trend at Adani Ports and Special Economic Zone, we didn’t gain much confidence. To be more specific, ROCE has fallen from 13% 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Adani Ports and Special Economic Zone’s ROCE

While returns have fallen for Adani Ports and Special Economic Zone in recent times, we’re encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 96% to shareholders over the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Adani Ports and Special Economic Zone does come with some risks, and we’ve found 3 warning signs that you should be aware of.

While Adani Ports and Special Economic Zone isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

Find out whether Adani Ports and Special Economic Zone 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.



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