Returns On Capital Signal Tricky Times Ahead For Shigan Quantum Technologies (NSE:SHIGAN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Shigan Quantum Technologies (NSE:SHIGAN) and its ROCE trend, we weren't exactly thrilled.

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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 Shigan Quantum Technologies, this is the formula:

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

0.14 = ₹161m ÷ (₹1.9b - ₹812m) (Based on the trailing twelve months to September 2025).

So, Shigan Quantum Technologies has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Auto Components industry average of 13%.

See our latest analysis for Shigan Quantum Technologies

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'd like to look at how Shigan Quantum Technologies has performed in the past in other metrics, you can view this free graph of Shigan Quantum Technologies' past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Shigan Quantum Technologies' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 14% from 34% 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.

On a side note, Shigan Quantum Technologies has done well to pay down its current liabilities to 42% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.

What We Can Learn From Shigan Quantum Technologies' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Shigan Quantum Technologies. However, despite the promising trends, the stock has fallen 41% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Shigan Quantum Technologies does come with some risks though, we found 5 warning signs in our investment analysis, and 3 of those are concerning...

While Shigan Quantum Technologies 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.

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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.