Hardwyn India (NSE:HARDWYN) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, Hardwyn India (NSE:HARDWYN) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Hardwyn India:

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

0.039 = ₹153m ÷ (₹4.5b - ₹572m) (Based on the trailing twelve months to March 2024).

Thus, Hardwyn India has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 5.5%.

See our latest analysis for Hardwyn India

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

What Does the ROCE Trend For Hardwyn India Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 3.9%. The amount of capital employed has increased too, by 3,668%. So we're very much inspired by what we're seeing at Hardwyn India 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 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

All in all, it's terrific to see that Hardwyn India is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 35% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Hardwyn India looks impressive, no company is worth an infinite price. The intrinsic value infographic for HARDWYN helps visualize whether it is currently trading for a fair price.

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.