India Nippon Electricals (NSE:INDNIPPON) Has More To Do To Multiply In Value Going Forward

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of India Nippon Electricals (NSE:INDNIPPON) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on India Nippon Electricals is:

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

0.11 = ₹512m ÷ (₹5.9b - ₹1.2b) (Based on the trailing twelve months to March 2021).

Therefore, India Nippon Electricals has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Auto Components industry.

See our latest analysis for India Nippon Electricals

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're interested in investigating India Nippon Electricals' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For India Nippon Electricals Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 81% in that time. 11% is a pretty standard return, and it provides some comfort knowing that India Nippon Electricals has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that India Nippon Electricals has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 119% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing India Nippon Electricals, we've discovered 1 warning sign that you should be aware of.

While India Nippon Electricals may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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