12/9/2023 0 Comments Invested capital turnoverSo its profit margin is very high, around 60%.Īlso since it is more into technology service, it can scale very fast without much investment which we can see in the last few years. Moreover there is a high entry barrier in this business due to regulatory policies, technology edge and switching cost. It is an asset light business as it’s more into technology and data management. So basically is involved in maintenance of shares traded in the exchanges. The best way to practically understand the concept is using the case studies as it will give you a clear picture of how it works in different sectors.ĬDSL- Central Depository Services (India) Limited operates as a securities depository in India. Sectors like FMCG(Fast Moving And Consumer Goods), Retail Business (Dmart, reliance etc), Financial Services etc command high turnover due to scalability and high volume business. Generally the companies who have the capacity to scale and deal with huge volumes of sales come in the category of higher turnover. So how much sales is done on 1 rs of invested capital. The Sales Turnover as the formula says is net sales done on Invested capital. Due to this their ROIC is also in the upper range. Few players in these sectors command a profit margin of upto 60-70%. Some of the sectors which command high margins are IT sector, Speciality Chemicals, CRAMS(Contract Research And Manufacturing) in Pharma, Security Depositories Companies, Platform Companies etc. If a sector is highly concentrated means very few players are operating in that sector then the whole market will be divided into those players only and there will be less competition and so they can command a higher price from their customers. Profit Margin is usually high for companies which have the pricing power in the market and have less competition. If any of the components increases the roic will increase and if both the components increase, then that is the best to have as the roic will increase double fold. So the two components here are profit margin and sales turnover. Now comes the very interesting way to look into ROIC using Dupont Analysis which will decompose it into two components. ROIC = Net Profit After Tax / Invested Capital Dupont Analysis of ROIC Invested Capital = The Capital which is actively invested into the operation of company (Includes Fixed Assets, Current Assets and Investments directly involved in generating revenue) So a very important ratio to be looked into. This ratio helps investors to measure their returns on the capital they have invested in the company. So basically two components – Net Profit (as Numerator) and Invested Capital(as Denominator). Case Study Using Companies CDSL Vs Dmartīy definition Return On Invested Capital is the profit a company is generating on the total Invested Capital.
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