Inox Wind's (NSE:INOXWIND) Returns On Capital Are Heading Higher

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Inox Wind (NSE:INOXWIND) so let's look a bit deeper.

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

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 Inox Wind is:

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

0.14 = ₹4.6b ÷ (₹84b - ₹50b) (Based on the trailing twelve months to December 2024).

Thus, Inox Wind has an ROCE of 14%. In absolute terms, that's a pretty standard return but compared to the Electrical industry average it falls behind.

Check out our latest analysis for Inox Wind

Above you can see how the current ROCE for Inox Wind compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Inox Wind .

What Does the ROCE Trend For Inox Wind Tell Us?

The fact that Inox Wind is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 14% which is a sight for sore eyes. Not only that, but the company is utilizing 55% more capital than before, but that's to be expected from a company 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.

On a side note, Inox Wind's current liabilities are still rather high at 60% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Inox Wind's ROCE

Long story short, we're delighted to see that Inox Wind's reinvestment activities have paid off and the company is now profitable. And a remarkable 1,775% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Inox Wind (of which 1 is significant!) that you should know about.

While Inox Wind may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.