Shareholders Would Enjoy A Repeat Of Schneider Electric Infrastructure's (NSE:SCHNEIDER) Recent Growth In Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, the ROCE of Schneider Electric Infrastructure (NSE:SCHNEIDER) looks great, so lets see what the trend can tell us.

Understanding 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 Schneider Electric Infrastructure, this is the formula:

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

0.23 = ₹1.1b ÷ (₹13b - ₹7.8b) (Based on the trailing twelve months to December 2022).

Thus, Schneider Electric Infrastructure has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for Schneider Electric Infrastructure

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

What Does the ROCE Trend For Schneider Electric Infrastructure Tell Us?

We're delighted to see that Schneider Electric Infrastructure 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 23% on its capital. Not only that, but the company is utilizing 54% more capital than before, but that's to be expected from a company 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.

One more thing to note, Schneider Electric Infrastructure has decreased current liabilities to 62% 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.

The Bottom Line On 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 with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Schneider Electric Infrastructure we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.