Returns Are Gaining Momentum At Om Infra (NSE:OMINFRAL)

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So on that note, Om Infra (NSE:OMINFRAL) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Om Infra, this is the formula:

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

0.097 = ₹797m ÷ (₹16b - ₹7.5b) (Based on the trailing twelve months to December 2023).

So, Om Infra has an ROCE of 9.7%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 14%.

Check out our latest analysis for Om Infra

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

So How Is Om Infra's ROCE Trending?

Om Infra's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 71% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 48% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Om Infra's ROCE

To bring it all together, Om Infra has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 367% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

On a final note, we've found 2 warning signs for Om Infra that we think you should be aware of.

While Om Infra isn't earning the highest return, check out this free list of companies that are 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.