Steel Strips Wheels (NSE:SSWL) 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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Steel Strips Wheels (NSE:SSWL) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Steel Strips Wheels:

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

0.17 = ₹3.4b ÷ (₹33b - ₹13b) (Based on the trailing twelve months to December 2024).

Thus, Steel Strips Wheels has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 15% generated by the Auto Components industry.

Check out our latest analysis for Steel Strips Wheels

In the above chart we have measured Steel Strips Wheels' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Steel Strips Wheels for free.

What Does the ROCE Trend For Steel Strips Wheels Tell Us?

Steel Strips Wheels is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 49%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that Steel Strips Wheels can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 461% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Steel Strips Wheels we've found 4 warning signs (1 is concerning!) that you should be aware of before investing here.

While Steel Strips Wheels 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. 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.