Return Trends At GPT Infraprojects (NSE:GPTINFRA) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of GPT Infraprojects (NSE:GPTINFRA) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on GPT Infraprojects is:

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

0.18 = ₹638m ÷ (₹7.2b - ₹3.7b) (Based on the trailing twelve months to March 2022).

So, GPT Infraprojects has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Construction industry.

See our latest analysis for GPT Infraprojects

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how GPT Infraprojects has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From GPT Infraprojects' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 44% in that time. 18% is a pretty standard return, and it provides some comfort knowing that GPT Infraprojects has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, GPT Infraprojects has done well to reduce current liabilities to 52% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 52%, some of that risk is still prevalent.

The Bottom Line

To sum it up, GPT Infraprojects has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 21%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know more about GPT Infraprojects, we've spotted 3 warning signs, and 1 of them is a bit concerning.

While GPT Infraprojects 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.