Inox Wind Energy (NSE:IWEL) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Inox Wind Energy (NSE:IWEL) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Inox Wind Energy:

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

0.068 = ₹3.7b ÷ (₹84b - ₹30b) (Based on the trailing twelve months to September 2024).

Therefore, Inox Wind Energy has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Electrical industry average of 16%.

See our latest analysis for Inox Wind Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Inox Wind Energy's ROCE against it's prior returns. If you'd like to look at how Inox Wind Energy has performed in the past in other metrics, you can view this free graph of Inox Wind Energy's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Inox Wind Energy 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 three years ago but is is now generating 6.8% on its capital. In addition to that, Inox Wind Energy is employing 104% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 36%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Inox Wind Energy's ROCE

Long story short, we're delighted to see that Inox Wind Energy's reinvestment activities have paid off and the company is now profitable. And a remarkable 1,189% total return over the last three 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.

While Inox Wind Energy looks impressive, no company is worth an infinite price. The intrinsic value infographic for IWEL helps visualize whether it is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.