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Should You Care About Public Joint Stock Company Globaltruck Management’s (MCX:GTRK) Investment Potential?

Simply Wall St

Today we'll evaluate Public Joint Stock Company Globaltruck Management (MCX:GTRK) to determine whether it could have potential as an investment idea. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First, we'll go over how we calculate ROCE. Then we'll compare its ROCE to similar companies. Finally, we'll look at how its current liabilities affect its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

How Do You Calculate Return On Capital Employed?

Analysts use this formula to calculate return on capital employed:

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

Or for Globaltruck Management:

0.10 = ₽861m ÷ (₽10b - ₽2.1b) (Based on the trailing twelve months to June 2019.)

Therefore, Globaltruck Management has an ROCE of 10%.

View our latest analysis for Globaltruck Management

Does Globaltruck Management Have A Good ROCE?

One way to assess ROCE is to compare similar companies. Using our data, Globaltruck Management's ROCE appears to be around the 9.4% average of the Transportation industry. Aside from the industry comparison, Globaltruck Management's ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. Investors may wish to consider higher-performing investments.

We can see that, Globaltruck Management currently has an ROCE of 10%, less than the 23% it reported 3 years ago. This makes us wonder if the business is facing new challenges. You can click on the image below to see (in greater detail) how Globaltruck Management's past growth compares to other companies.

MISX:GTRK Past Revenue and Net Income, January 1st 2020

It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.

How Globaltruck Management's Current Liabilities Impact Its ROCE

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counteract this, we check if a company has high current liabilities, relative to its total assets.

Globaltruck Management has total liabilities of ₽2.1b and total assets of ₽10b. As a result, its current liabilities are equal to approximately 20% of its total assets. This very reasonable level of current liabilities would not boost the ROCE by much.

The Bottom Line On Globaltruck Management's ROCE

With that in mind, we're not overly impressed with Globaltruck Management's ROCE, so it may not be the most appealing prospect. Of course, you might also be able to find a better stock than Globaltruck Management. So you may wish to see this free collection of other companies that have grown earnings strongly.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.