Investors Will Want NDR Auto Components' (NSE:NDRAUTO) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. With that in mind, we've noticed some promising trends at NDR Auto Components (NSE:NDRAUTO) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for NDR Auto Components, this is the formula:

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

0.0076 = ₹14m ÷ (₹2.2b - ₹392m) (Based on the trailing twelve months to March 2021).

Thus, NDR Auto Components has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 11%.

Check out our latest analysis for NDR Auto Components

Historical performance is a great place to start when researching a stock so above you can see the gauge for NDR Auto Components' ROCE against it's prior returns. If you'd like to look at how NDR Auto Components 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?

We're delighted to see that NDR Auto Components is reaping rewards from its investments and has now broken into profitability. The company now earns 0.8% on its capital, because two years ago it was incurring losses. While returns have increased, the amount of capital employed by NDR Auto Components has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line

To bring it all together, NDR Auto Components has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 230% to shareholders over the last year, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with NDR Auto Components (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While NDR Auto Components isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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