Nava (NSE:NAVA) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Nava (NSE:NAVA) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Nava is:

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

0.15 = ₹15b ÷ (₹105b - ₹8.0b) (Based on the trailing twelve months to December 2024).

Therefore, Nava has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 14% generated by the Industrials industry.

See our latest analysis for Nava

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

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Nava are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% 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.

The Bottom Line On Nava's ROCE

In summary, it's great to see that Nava can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 1,270% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Nava can keep these trends up, it could have a bright future ahead.

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

While Nava 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.