The Return Trends At Hilton Metal Forging (NSE:HILTON) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, Hilton Metal Forging (NSE:HILTON) looks quite promising in regards to its trends of return on capital.

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

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 Hilton Metal Forging:

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

0.13 = ₹144m ÷ (₹1.9b - ₹722m) (Based on the trailing twelve months to September 2023).

Therefore, Hilton Metal Forging has an ROCE of 13%. In isolation, that's a pretty standard return but against the Machinery industry average of 18%, it's not as good.

Check out our latest analysis for Hilton Metal Forging

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 want to delve into the historical earnings, revenue and cash flow of Hilton Metal Forging, check out these free graphs here.

The Trend Of ROCE

The trends we've noticed at Hilton Metal Forging are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 50%. So we're very much inspired by what we're seeing at Hilton Metal Forging thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Hilton Metal Forging has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 935% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Hilton Metal Forging (of which 2 make us uncomfortable!) that you should know about.

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.