Why We Like The Returns At Ingersoll-Rand (India) (NSE:INGERRAND)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, the ROCE of Ingersoll-Rand (India) (NSE:INGERRAND) looks great, so lets see what the trend can tell us.

What Is 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 Ingersoll-Rand (India):

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

0.49 = ₹2.9b ÷ (₹8.5b - ₹2.6b) (Based on the trailing twelve months to June 2024).

Therefore, Ingersoll-Rand (India) has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Machinery industry average of 17%.

Check out our latest analysis for Ingersoll-Rand (India)

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

So How Is Ingersoll-Rand (India)'s ROCE Trending?

Ingersoll-Rand (India) is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 49%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% 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.

Our Take On Ingersoll-Rand (India)'s ROCE

To sum it up, Ingersoll-Rand (India) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 695% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Ingersoll-Rand (India) does have some risks though, and we've spotted 1 warning sign for Ingersoll-Rand (India) that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.