Will Gujarat Sidhee Cement's (NSE:GSCLCEMENT) Growth In ROCE Persist?

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. Speaking of which, we noticed some great changes in Gujarat Sidhee Cement's (NSE:GSCLCEMENT) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Gujarat Sidhee Cement is:

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

0.13 = ₹604m ÷ (₹6.2b - ₹1.6b) (Based on the trailing twelve months to June 2020).

So, Gujarat Sidhee Cement has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Basic Materials industry.

View our latest analysis for Gujarat Sidhee Cement

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gujarat Sidhee Cement's ROCE against it's prior returns. If you'd like to look at how Gujarat Sidhee Cement has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Gujarat Sidhee Cement has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 13% which is a sight for sore eyes. In addition to that, Gujarat Sidhee Cement is employing 112% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 26%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Gujarat Sidhee Cement has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

Long story short, we're delighted to see that Gujarat Sidhee Cement's reinvestment activities have paid off and the company is now profitable. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 2 warning signs for Gujarat Sidhee Cement you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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