Capital Investment Trends At Shera Energy (NSE:SHERA) Look Strong

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ergo, when we looked at the ROCE trends at Shera Energy (NSE:SHERA), we liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Shera Energy is:

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

0.24 = ₹495m ÷ (₹5.1b - ₹3.1b) (Based on the trailing twelve months to September 2024).

Thus, Shera Energy has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Electrical industry average of 16%.

See our latest analysis for Shera Energy

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're interested in investigating Shera Energy's past further, check out this free graph covering Shera Energy's past earnings, revenue and cash flow.

The Trend Of ROCE

Shera Energy deserves to be commended in regards to it's returns. The company has employed 82% more capital in the last five years, and the returns on that capital have remained stable at 24%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Shera Energy can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that Shera Energy has a current liabilities to total assets ratio of 60%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Shera Energy's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. However, over the last year, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Shera Energy does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.