The Returns On Capital At Innovana Thinklabs (NSE:INNOVANA) Don't Inspire Confidence
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. In light of that, when we looked at Innovana Thinklabs (NSE:INNOVANA) and its ROCE trend, we weren't exactly thrilled.
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 Innovana Thinklabs, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = ₹567m ÷ (₹3.5b - ₹313m) (Based on the trailing twelve months to September 2025).
Therefore, Innovana Thinklabs has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Software industry.
Check out our latest analysis for Innovana Thinklabs
Historical performance is a great place to start when researching a stock so above you can see the gauge for Innovana Thinklabs' ROCE against it's prior returns. If you'd like to look at how Innovana Thinklabs has performed in the past in other metrics, you can view this free graph of Innovana Thinklabs' past earnings, revenue and cash flow.
So How Is Innovana Thinklabs' ROCE Trending?
Unfortunately, the trend isn't great with ROCE falling from 37% five years ago, while capital employed has grown 406%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Innovana Thinklabs' earnings and if they change as a result from the capital raise.
On a side note, Innovana Thinklabs has done well to pay down its current liabilities to 9.1% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
The Bottom Line
While returns have fallen for Innovana Thinklabs in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 846% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
On a separate note, we've found 1 warning sign for Innovana Thinklabs you'll probably want to know about.
While Innovana Thinklabs isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.