Grindwell Norton (NSE:GRINDWELL) Could Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Grindwell Norton's (NSE:GRINDWELL) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Grindwell Norton, this is the formula:

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

0.24 = ₹3.4b ÷ (₹19b - ₹4.8b) (Based on the trailing twelve months to September 2021).

So, Grindwell Norton has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Machinery industry average of 14%.

Check out our latest analysis for Grindwell Norton

In the above chart we have measured Grindwell Norton's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Grindwell Norton.

The Trend Of ROCE

We like the trends that we're seeing from Grindwell Norton. Over the last five years, returns on capital employed have risen substantially to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 66% more capital is being employed now too. So we're very much inspired by what we're seeing at Grindwell Norton thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Grindwell Norton has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 464% to shareholders over the last five 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 Grindwell Norton can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Grindwell Norton that you might find interesting.

Grindwell Norton is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

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