PNC Infratech (NSE:PNCINFRA) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in PNC Infratech's (NSE:PNCINFRA) returns on capital, so let's have a look.

What is 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 PNC Infratech is:

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

0.13 = ₹9.4b ÷ (₹89b - ₹14b) (Based on the trailing twelve months to December 2020).

Thus, PNC Infratech has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Construction industry.

Check out our latest analysis for PNC Infratech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how PNC Infratech has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is PNC Infratech's ROCE Trending?

The trends we've noticed at PNC Infratech are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. 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 142%. So we're very much inspired by what we're seeing at PNC Infratech thanks to its ability to profitably reinvest capital.

What We Can Learn From PNC Infratech's ROCE

To sum it up, PNC Infratech has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 142% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if PNC Infratech can keep these trends up, it could have a bright future ahead.

Like most companies, PNC Infratech does come with some risks, and we've found 1 warning sign that you should be aware of.

While PNC Infratech 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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