What Do The Returns At Globus Spirits (NSE:GLOBUSSPR) Mean Going Forward?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Globus Spirits (NSE:GLOBUSSPR) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Globus Spirits:

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

0.14 = ₹867m ÷ (₹8.0b - ₹1.9b) (Based on the trailing twelve months to March 2020).

Therefore, Globus Spirits has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Beverage industry.

Check out our latest analysis for Globus Spirits

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 want to delve into the historical earnings, revenue and cash flow of Globus Spirits, check out these free graphs here.

What Can We Tell From Globus Spirits' ROCE Trend?

We like the trends that we're seeing from Globus Spirits. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Globus Spirits thanks to its ability to profitably reinvest capital.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Globus Spirits has. And with a respectable 98% awarded to those who held the stock over the last five years, you could argue that these trends are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 4 warning signs with Globus Spirits and understanding them should be part of your investment process.

While Globus Spirits 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. 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.
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