GMR Power And Urban Infra (NSE:GMRP&UI) Shareholders Will Want The ROCE Trajectory To Continue

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at GMR Power And Urban Infra (NSE:GMRP&UI) so let's look a bit deeper.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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. The formula for this calculation on GMR Power And Urban Infra is:

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

0.11 = ₹12b ÷ (₹166b - ₹60b) (Based on the trailing twelve months to December 2024).

Therefore, GMR Power And Urban Infra has an ROCE of 11%. In isolation, that's a pretty standard return but against the Construction industry average of 16%, it's not as good.

See our latest analysis for GMR Power And Urban Infra

Above you can see how the current ROCE for GMR Power And Urban Infra compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for GMR Power And Urban Infra .

How Are Returns Trending?

We like the trends that we're seeing from GMR Power And Urban Infra. The data shows that returns on capital have increased substantially over the last three years to 11%. 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 74%. So we're very much inspired by what we're seeing at GMR Power And Urban Infra thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 36%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

All in all, it's terrific to see that GMR Power And Urban Infra is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 311% to shareholders over the last three years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if GMR Power And Urban Infra can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing GMR Power And Urban Infra we've found 4 warning signs (2 are concerning!) that you should be aware of before investing here.

While GMR Power And Urban Infra may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.