Actually, I wanted to get into companies whose turnover was very high relative to the capital employed.I liked this ratio because I didnt want to bring margin game into picture at all.I have seen that in case you have a requisite turnover, increasing profits is not very difficult. And I have always beleived in the gradient game and wait for points of inflexion.Also, as far as ROCE is concerned, the Other Income can play a big spoilsport in some years, whereas in this ratio we are simply ignoring other income. As far as buy and sell signals are concerned, this is a ratio which will provide signals on points of inflexion. I dont think we should ever use any ratio for generating buys and sell signals sacrosanctly.Actually, this ratio points out what the company is doing with its returns over the years. I beleuve a company has its responsibilty towards the capital providers and good businesses run with minimum amount of capital.Simply observe this ratio for companies like Asian paints and Pidilite over the years and you will understand what rewards they have given to shareholders...
Ambarish, we must only exclude non-trade investment from calculation.Trade investment has a strategic purpose, and must be included in capital employed.