Sanghvi Movers (NSE:SANGHVIMOV) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 when we looked at Sanghvi Movers (NSE:SANGHVIMOV) and its trend of ROCE, we really liked what we saw.

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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. Analysts use this formula to calculate it for Sanghvi Movers:

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

0.15 = ₹1.9b ÷ (₹15b - ₹2.4b) (Based on the trailing twelve months to December 2024).

Therefore, Sanghvi Movers has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Trade Distributors industry.

View our latest analysis for Sanghvi Movers

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

The Trend Of ROCE

We're delighted to see that Sanghvi Movers is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 15% on its capital. In addition to that, Sanghvi Movers is employing 28% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Sanghvi Movers' ROCE

Long story short, we're delighted to see that Sanghvi Movers' reinvestment activities have paid off and the company is now profitable. And a remarkable 715% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Sanghvi Movers does come with some risks, and we've found 2 warning signs that you should be aware of.

While Sanghvi Movers 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.