Stock Analysis

Schneider Electric Infrastructure (NSE:SCHNEIDER) Knows How To Allocate Capital Effectively

NSEI:SCHNEIDER
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 looked at the ROCE trend of Schneider Electric Infrastructure (NSE:SCHNEIDER) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Schneider Electric Infrastructure is:

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

0.36 = ₹3.1b ÷ (₹16b - ₹7.4b) (Based on the trailing twelve months to June 2024).

Therefore, Schneider Electric Infrastructure has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

Check out our latest analysis for Schneider Electric Infrastructure

roce
NSEI:SCHNEIDER Return on Capital Employed November 14th 2024

Above you can see how the current ROCE for Schneider Electric Infrastructure compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Schneider Electric Infrastructure .

How Are Returns Trending?

The fact that Schneider Electric Infrastructure is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 36% on its capital. And unsurprisingly, like most companies trying to break into the black, Schneider Electric Infrastructure is utilizing 411% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Schneider Electric Infrastructure has decreased current liabilities to 47% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Schneider Electric Infrastructure has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

What We Can Learn From Schneider Electric Infrastructure's ROCE

Long story short, we're delighted to see that Schneider Electric Infrastructure's reinvestment activities have paid off and the company is now profitable. And a remarkable 980% 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 Schneider Electric Infrastructure can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Schneider Electric Infrastructure and understanding this should be part of your investment process.

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.