Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of Cummins India (NSE:CUMMINSIND) looks great, so lets see what the trend can tell us.
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. To calculate this metric for Cummins India, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = ₹23b ÷ (₹102b - ₹23b) (Based on the trailing twelve months to June 2025).
Therefore, Cummins India has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Machinery industry average of 16%.
See our latest analysis for Cummins India
In the above chart we have measured Cummins India's 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 Cummins India for free.
What The Trend Of ROCE Can Tell Us
Cummins India is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 29%. The amount of capital employed has increased too, by 71%. So we're very much inspired by what we're seeing at Cummins India thanks to its ability to profitably reinvest capital.
Our Take On Cummins India's ROCE
To sum it up, Cummins India has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 796% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Cummins India does come with some risks, and we've found 1 warning sign that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.