[ad_1]
Today, we will review 8K Miles Software Limited Services (NSE: 8KMILES) to determine if it could be an interesting investment prospect.
Specifically, we will examine its return on capital employed (ROCE), as this will give us an idea of how the company can generate profits with the capital it needs.
First, let's find a way to calculate the ROCE.
We will then compare its ROCE with similar companies.
Finally, we will examine the impact of its current liabilities on its ROCE.
What is return on capital used (ROCE)?
The ROCE is an indicator to badess the pre-tax income (in percentage) that a company earns on the capital invested in its business.
In general, a higher ROCE is preferable.
Overall, it's a valuable metric that has its flaws.
Author Edwin Whiting says to be cautious in comparing the ROCE of different companies because "there are no two exactly identical companies".
How do you calculate the return on capital employed?
The formula for calculating the return on capital employed is as follows:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total Assets – Current Liabilities)
Or for 8K Miles software services:
0.34 = ₹ 3.1b ÷ (¥ 10.0b – £ 904m) (based on the last twelve months up to December 2018.)
So, 8K Miles Software Services has a ROCE of 34%.
Check out our latest badysis for 8K Miles Software Services
The ROCE of 8K Miles Software Services is good?
When they make comparisons between similar companies, investors can find ROCE useful.
The ROCE of 8K Miles Software Services appears to be well above the 11% average of the software industry.
I think it's good to see this because it implies that the company is better than other companies to make the most of its capital.
Leaving aside its position relative to its sector for the moment, in absolute terms, the ROCE of 8K Miles Software Services is currently very good.
As can be seen, 8K Miles Software Services currently has a return on investment of 34%, compared to 26% 3 years ago.
This leads us to wonder whether the company has reinvested wisely.
Remember that this measure is about the past – it shows what happened in the past and does not
accurately predict the future.
ROCE can be misleading for cyclical companies because returns may seem incredible during an economic boom and terribly low during a downturn.
ROCE is, after all, a simple snapshot from one year to the next.
What is the pace of 8K Miles Software Services? You can see for yourself by looking at this free graph of previous revenues, revenues and cash flows.
Are the current responsibilities of 8K Miles Software Services distorting its ROCE?
Current liabilities include bills, such as vendor payments, short-term debt or a tax bill, which must be paid within 12 months.
Because of the way ROCE is calculated, a high level of current liabilities gives the impression to a company to have less capital employed and can therefore (sometimes unfairly) increase the ROCE.
To remedy this, we check whether a company has a high short-term liability in relation to its total badets.
8K Miles Software Services has total badets of ₹ 10.0b and short-term liabilities of ¥ 904m.
As a result, its current liabilities amount to approximately 9.0% of its total badets.
8K Miles Software Services has low current liabilities, which have a negligible impact on its relatively good ROCE.
The final result on the ROCE of 8K Miles Software Services
This should mark the company as worthy of further investigation.
Of course you might be able to find a better stock than 8K Miles Software Services. So, you might want to see this free collection of other companies that have greatly increased their profits.
I will like better 8K Miles Software Services if I see big insider purchases. While we wait, look at this free list of growing companies with a considerable number of recent insiders.
Our goal is to provide you with a long-term research badysis based on fundamental data. Note that our badysis may not take into account the latest price sensitive business announcements or qualitative information.
If you notice an error that needs to be corrected, please contact the publisher at [email protected]. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.
Warren Buffett's portfolio: What's he holding?
Get an insight into the spirit of the most renowned value investor on the planet. Take a look at the portfolio's top holdings, past performance, how it diversifies its investments, its growth estimates, and explore investment ideas based on Buffet's investment methodology. Click here to view a FREE infographic badysis of Warren Buffett's investment portfolio.
Source link
