Returns On Capital At Sintercom India (NSE:SINTERCOM) 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? In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Sintercom India (NSE:SINTERCOM), it didn’t seem to tick all of these boxes.

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 Sintercom India is:

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

0.0028 = ₹3.0m ÷ (₹1.5b – ₹451m) (Based on the trailing twelve months to June 2022).

Therefore, Sintercom India has an ROCE of 0.3%. In absolute terms, that’s a low return and it also under-performs the Auto Components industry average of 12%.

Check out our latest analysis for Sintercom India

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sintercom India’s ROCE against it’s prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sintercom India, check out these free graphs here.

What Does the ROCE Trend For Sintercom India Tell Us?

When we looked at the ROCE trend at Sintercom India, we didn’t gain much confidence. Over the last five years, returns on capital have decreased to 0.3% from 13% 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.

The Bottom Line

In summary, despite lower returns in the short term, we’re encouraged to see that Sintercom India is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 38% over the last three years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We’ve identified 4 warning signs with Sintercom India (at least 2 which are a bit concerning) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.