Returns Are Gaining Momentum At Nava Bharat Ventures (NSE:NBVENTURES)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Nava Bharat Ventures' (NSE:NBVENTURES) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Bharat Ventures is:

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

0.094 = ₹7.3b ÷ (₹94b - ₹15b) (Based on the trailing twelve months to December 2020).

So, Nava Bharat Ventures has an ROCE of 9.4%. Even though it's in line with the industry average of 9.4%, it's still a low return by itself.

See our latest analysis for Nava Bharat Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nava Bharat Ventures' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Nava Bharat Ventures, check out these free graphs here.

So How Is Nava Bharat Ventures' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 9.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 49%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Nava Bharat Ventures has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 21% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Nava Bharat Ventures (of which 1 doesn't sit too well with us!) that you should know about.

While Nava Bharat Ventures 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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