Capital Investment Trends At Hero MotoCorp (NSE:HEROMOTOCO) Look Strong

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at Hero MotoCorp (NSE:HEROMOTOCO), we liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Hero MotoCorp, this is the formula:

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

0.25 = ₹51b ÷ (₹293b - ₹87b) (Based on the trailing twelve months to December 2024).

Thus, Hero MotoCorp has an ROCE of 25%. In absolute terms that's a very respectable return and compared to the Auto industry average of 21% it's pretty much on par.

See our latest analysis for Hero MotoCorp

In the above chart we have measured Hero MotoCorp's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Hero MotoCorp .

The Trend Of ROCE

It's hard not to be impressed by Hero MotoCorp's returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 32% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Hero MotoCorp can keep this up, we'd be very optimistic about its future.

In Conclusion...

In summary, we're delighted to see that Hero MotoCorp has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 134% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 1 warning sign for Hero MotoCorp you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.