H.G. Infra Engineering (NSE:HGINFRA) Is Aiming To Keep Up Its Impressive Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over H.G. Infra Engineering's (NSE:HGINFRA) trend of ROCE, we really liked what we saw.

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. To calculate this metric for H.G. Infra Engineering, this is the formula:

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

0.25 = ₹7.0b ÷ (₹37b - ₹9.3b) (Based on the trailing twelve months to December 2022).

Therefore, H.G. Infra Engineering has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Construction industry average of 12%.

View our latest analysis for H.G. Infra Engineering

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

What Does the ROCE Trend For H.G. Infra Engineering Tell Us?

We'd be pretty happy with returns on capital like H.G. Infra Engineering. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 468% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, H.G. Infra Engineering has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

H.G. Infra Engineering has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 174% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

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

H.G. Infra 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.