Investors Shouldn't Overlook Stylam Industries' (NSE:STYLAMIND) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 Stylam Industries (NSE:STYLAMIND) looks great, so lets see what the trend can tell us.

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

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. Analysts use this formula to calculate it for Stylam Industries:

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

0.31 = ₹1.7b ÷ (₹6.1b - ₹599m) (Based on the trailing twelve months to March 2024).

Thus, Stylam Industries has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Building industry average of 16%.

Check out our latest analysis for Stylam Industries

Above you can see how the current ROCE for Stylam Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Stylam Industries for free.

So How Is Stylam Industries' ROCE Trending?

Stylam Industries is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 31%. Basically the business is earning more per dollar of capital invested and in addition to that, 79% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 9.9%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Stylam Industries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Stylam Industries' ROCE

To sum it up, Stylam Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 18% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Stylam Industries looks impressive, no company is worth an infinite price. The intrinsic value infographic for STYLAMIND helps visualize whether it is currently trading for a fair price.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com