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    Paramount Communications (NSE:PARACABLES) Is Looking To Continue Growing Its Returns On Capital

    Simply Wall St·05/02/2025 00:06:28
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    Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Paramount Communications (NSE:PARACABLES) looks quite promising in regards to its trends of return on capital.

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

    For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Paramount Communications, this is the formula:

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

    0.16 = ₹1.1b ÷ (₹8.3b - ₹1.4b) (Based on the trailing twelve months to December 2024).

    So, Paramount Communications has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 19% generated by the Electrical industry.

    See our latest analysis for Paramount Communications

    roce
    NSEI:PARACABLES Return on Capital Employed May 2nd 2025

    While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Paramount Communications.

    What Can We Tell From Paramount Communications' ROCE Trend?

    We like the trends that we're seeing from Paramount Communications. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 93%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

    One more thing to note, Paramount Communications has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

    What We Can Learn From Paramount Communications' ROCE

    All in all, it's terrific to see that Paramount Communications is reaping the rewards from prior investments and is growing its capital base. And a remarkable 639% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

    On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for PARACABLES on our platform that is definitely worth checking out.

    While Paramount Communications may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.