Hindustan Composites' (NSE:HINDCOMPOS) Returns On Capital Are Heading Higher

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Hindustan Composites (NSE:HINDCOMPOS) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Hindustan Composites:

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

0.04 = ₹455m ÷ (₹12b - ₹571m) (Based on the trailing twelve months to December 2024).

Therefore, Hindustan Composites has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 15%.

View our latest analysis for Hindustan Composites

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

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.0%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at Hindustan Composites thanks to its ability to profitably reinvest capital.

The Bottom Line On Hindustan Composites' ROCE

All in all, it's terrific to see that Hindustan Composites is reaping the rewards from prior investments and is growing its capital base. And a remarkable 348% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Hindustan Composites does come with some risks, and we've found 1 warning sign that you should be aware of.

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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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.