Returns on Capital Paint A Bright Future For HBL Engineering (NSE:HBLENGINE)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at HBL Engineering's (NSE:HBLENGINE) look very promising so lets take a look.

We've discovered 1 warning sign about HBL Engineering. View them for free.

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 HBL Engineering is:

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

0.29 = ₹4.0b ÷ (₹18b - ₹4.4b) (Based on the trailing twelve months to December 2024).

Therefore, HBL Engineering has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Electrical industry average of 19%.

View our latest analysis for HBL Engineering

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 HBL Engineering has performed in the past in other metrics, you can view this free graph of HBL Engineering's past earnings, revenue and cash flow.

So How Is HBL Engineering's ROCE Trending?

The trends we've noticed at HBL Engineering are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 77% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what HBL Engineering has. And a remarkable 3,798% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if HBL Engineering can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing HBL Engineering, we've discovered 1 warning sign that you should be aware of.

HBL Engineering 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.

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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.