Capital Investments At Motherson Sumi Wiring India (NSE:MSUMI) Point To A Promising Future

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Motherson Sumi Wiring India's (NSE:MSUMI) ROCE trend, we were very happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Motherson Sumi Wiring India:

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

0.49 = ₹7.7b ÷ (₹29b - ₹13b) (Based on the trailing twelve months to December 2023).

So, Motherson Sumi Wiring India has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Auto Components industry average of 15%.

See our latest analysis for Motherson Sumi Wiring India

In the above chart we have measured Motherson Sumi Wiring India'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 Motherson Sumi Wiring India .

How Are Returns Trending?

In terms of Motherson Sumi Wiring India's history of ROCE, it's quite impressive. The company has consistently earned 49% for the last two years, and the capital employed within the business has risen 46% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

Another thing to note, Motherson Sumi Wiring India has a high ratio of current liabilities to total assets of 45%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

Motherson Sumi Wiring India has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 40% return if they held over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

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

Motherson Sumi Wiring India is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.