CG Power and Industrial Solutions (NSE:CGPOWER) Could Be Struggling To Allocate Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating CG Power and Industrial Solutions (NSE:CGPOWER), we don't think it's current trends fit the mold of a multi-bagger.

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What Is 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. Analysts use this formula to calculate it for CG Power and Industrial Solutions:

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

0.16 = ₹13b ÷ (₹116b - ₹37b) (Based on the trailing twelve months to September 2025).

Thus, CG Power and Industrial Solutions has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 18% generated by the Electrical industry.

View our latest analysis for CG Power and Industrial Solutions

In the above chart we have measured CG Power and Industrial Solutions' 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 CG Power and Industrial Solutions for free.

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 24% four years ago, while capital employed has grown 501%. That being said, CG Power and Industrial Solutions raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with CG Power and Industrial Solutions' earnings and if they change as a result from the capital raise.

On a side note, CG Power and Industrial Solutions has done well to pay down its current liabilities to 32% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On CG Power and Industrial Solutions' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that CG Power and Industrial Solutions is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 2,233% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you want to continue researching CG Power and Industrial Solutions, you might be interested to know about the 1 warning sign that our analysis has discovered.

While CG Power and Industrial Solutions 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.