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

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. 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 when we looked at NDR Auto Components (NSE:NDRAUTO) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on NDR Auto Components is:

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

0.032 = ₹66m ÷ (₹2.5b - ₹465m) (Based on the trailing twelve months to March 2022).

Thus, NDR Auto Components has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 12%.

View our latest analysis for NDR Auto Components

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 NDR Auto Components' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From NDR Auto Components' ROCE Trend?

We're delighted to see that NDR Auto Components is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 3.2% which is a sight for sore eyes. In addition to that, NDR Auto Components is employing 22% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On NDR Auto Components' ROCE

Long story short, we're delighted to see that NDR Auto Components' reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 64% return over the last year. In light of that, we think it's worth looking further into this stock because if NDR Auto Components can keep these trends up, it could have a bright future ahead.

If you'd like to know more about NDR Auto Components, we've spotted 3 warning signs, and 1 of them is a bit concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.