Here's What's Concerning About G R Infraprojects' (NSE:GRINFRA) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at G R Infraprojects (NSE:GRINFRA) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 G R Infraprojects is:

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

0.18 = ₹19b ÷ (₹125b - ₹19b) (Based on the trailing twelve months to September 2022).

Therefore, G R Infraprojects has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Construction industry.

See our latest analysis for G R Infraprojects

Historical performance is a great place to start when researching a stock so above you can see the gauge for G R Infraprojects' ROCE against it's prior returns. If you're interested in investigating G R Infraprojects' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is G R Infraprojects' ROCE Trending?

When we looked at the ROCE trend at G R Infraprojects, we didn't gain much confidence. Around five years ago the returns on capital were 30%, but since then they've fallen to 18%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, G R Infraprojects has done well to pay down its current liabilities to 15% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On G R Infraprojects' ROCE

To conclude, we've found that G R Infraprojects is reinvesting in the business, but returns have been falling. Since the stock has declined 29% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we've found 1 warning sign for G R Infraprojects that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.