Investors Shouldn't Overlook The Favourable Returns On Capital At SKF India (NSE:SKFINDIA)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of SKF India (NSE:SKFINDIA) looks attractive right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for SKF India:

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

0.23 = ₹6.3b ÷ (₹37b - ₹9.3b) (Based on the trailing twelve months to June 2024).

So, SKF India has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Machinery industry average of 17%.

Check out our latest analysis for SKF India

Above you can see how the current ROCE for SKF India 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 SKF India .

So How Is SKF India's ROCE Trending?

In terms of SKF India's history of ROCE, it's quite impressive. The company has consistently earned 23% for the last five years, and the capital employed within the business has risen 57% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If SKF India can keep this up, we'd be very optimistic about its future.

In Conclusion...

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. And the stock has done incredibly well with a 221% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

SKF India does have some risks though, and we've spotted 1 warning sign for SKF India that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.