Hercules Hoists (NSE:HERCULES) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Hercules Hoists (NSE:HERCULES) so let's look a bit deeper.

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 Hercules Hoists:

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

0.0091 = ₹60m ÷ (₹6.8b - ₹147m) (Based on the trailing twelve months to September 2021).

Therefore, Hercules Hoists has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Machinery industry average of 15%.

Check out our latest analysis for Hercules Hoists

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hercules Hoists' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Hercules Hoists, check out these free graphs here.

How Are Returns Trending?

Hercules Hoists has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.9% on its capital. In addition to that, Hercules Hoists is employing 233% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Hercules Hoists has decreased current liabilities to 2.2% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Hercules Hoists has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Hercules Hoists' ROCE

To the delight of most shareholders, Hercules Hoists has now broken into profitability. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 3 warning signs facing Hercules Hoists that you might find interesting.

While Hercules Hoists isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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