SML Isuzu (NSE:SMLISUZU) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in SML Isuzu's (NSE:SMLISUZU) returns on capital, so let's have a look.

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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. To calculate this metric for SML Isuzu, this is the formula:

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

0.35 = ₹1.9b ÷ (₹13b - ₹7.7b) (Based on the trailing twelve months to March 2025).

Thus, SML Isuzu has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Machinery industry average of 15%.

View our latest analysis for SML Isuzu

Historical performance is a great place to start when researching a stock so above you can see the gauge for SML Isuzu's ROCE against it's prior returns. If you'd like to look at how SML Isuzu has performed in the past in other metrics, you can view this free graph of SML Isuzu's past earnings, revenue and cash flow.

How Are Returns Trending?

Shareholders will be relieved that SML Isuzu has broken into profitability. The company now earns 35% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by SML Isuzu has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 59% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line

To bring it all together, SML Isuzu has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 441% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

One more thing, we've spotted 2 warning signs facing SML Isuzu that you might find interesting.

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.