Capital Investments At Oriana Power (NSE:ORIANA) Point To A Promising Future

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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, when we ran our eye over Oriana Power's (NSE:ORIANA) trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Oriana Power, this is the formula:

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

0.23 = ₹1.4b ÷ (₹9.8b - ₹3.7b) (Based on the trailing twelve months to September 2024).

So, Oriana Power has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Construction industry average of 15%.

See our latest analysis for Oriana Power

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

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Oriana Power's returns on capital. Over the past three years, ROCE has remained relatively flat at around 23% and the business has deployed 1,949% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Oriana Power can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 37% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

Oriana Power has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 425% return they've received over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Oriana Power (of which 1 can't be ignored!) that you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.