Pritika Engineering Components (NSE:PRITIKA) Shareholders Will Want The ROCE Trajectory To Continue

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, Pritika Engineering Components (NSE:PRITIKA) 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. To calculate this metric for Pritika Engineering Components, this is the formula:

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

0.09 = ₹75m ÷ (₹1.1b - ₹276m) (Based on the trailing twelve months to September 2023).

Thus, Pritika Engineering Components has an ROCE of 9.0%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 14%.

View our latest analysis for Pritika Engineering Components

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pritika Engineering Components' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Pritika Engineering Components, check out these free graphs here.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.0%. The amount of capital employed has increased too, by 296%. So we're very much inspired by what we're seeing at Pritika Engineering Components thanks to its ability to profitably reinvest capital.

Our Take On Pritika Engineering Components' ROCE

All in all, it's terrific to see that Pritika Engineering Components is reaping the rewards from prior investments and is growing its capital base. And a remarkable 121% total return over the last year tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Pritika Engineering Components can keep these trends up, it could have a bright future ahead.

Pritika Engineering Components does come with some risks though, we found 6 warning signs in our investment analysis, and 2 of those are 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.