We Think Salzer Electronics (NSE:SALZERELEC) Might Have The DNA Of A Multi-Bagger

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Salzer Electronics (NSE:SALZERELEC) looks great, so lets see what the trend can tell us.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Salzer Electronics is:

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

0.20 = ₹1.2b ÷ (₹11b - ₹5.4b) (Based on the trailing twelve months to December 2024).

So, Salzer Electronics has an ROCE of 20%. In absolute terms that's a very respectable return and compared to the Electrical industry average of 19% it's pretty much on par.

View our latest analysis for Salzer Electronics

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

What The Trend Of ROCE Can Tell Us

Salzer Electronics is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. 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 69%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, Salzer Electronics has a high ratio of current liabilities to total assets of 48%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To sum it up, Salzer Electronics has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 1,546% 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 Salzer Electronics can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Salzer Electronics (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.