Symphony (NSE:SYMPHONY) Will Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could 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. Having said that, from a first glance at Symphony (NSE:SYMPHONY) we aren’t jumping out of our chairs at how returns are trending, but let’s have a deeper look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Symphony:

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

0.09 = ₹754m ÷ (₹12b – ₹3.2b) (Based on the trailing twelve months to December 2020).

Therefore, Symphony has an ROCE of 9.0%. Ultimately, that’s a low return and it under-performs the Consumer Durables industry average of 11%.

See our latest analysis for Symphony

Above you can see how the current ROCE for Symphony compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free report for Symphony.

The Trend Of ROCE

On the surface, the trend of ROCE at Symphony doesn’t inspire confidence. Around five years ago the returns on capital were 51%, but since then they’ve fallen to 9.0%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven’t increased.

In Conclusion…

In summary, we’re somewhat concerned by Symphony’s diminishing returns on increasing amounts of capital. Investors must expect better things on the horizon though because the stock has risen 8.7% in the last five years. Either way, we aren’t huge fans of the current trends and so with that we think you might find better investments elsewhere.

While Symphony doesn’t shine too bright in this respect, it’s still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

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. 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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