Returns At Surana Telecom and Power (NSE:SURANAT&P) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Surana Telecom and Power (NSE:SURANAT&P) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Surana Telecom and Power:

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

0.071 = ₹100m ÷ (₹1.5b - ₹96m) (Based on the trailing twelve months to March 2023).

Thus, Surana Telecom and Power has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Electrical industry average of 14%.

View our latest analysis for Surana Telecom and Power

Historical performance is a great place to start when researching a stock so above you can see the gauge for Surana Telecom and Power's ROCE against it's prior returns. If you're interested in investigating Surana Telecom and Power's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Surana Telecom and Power's ROCE Trending?

Surana Telecom and Power's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 55% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

To sum it up, Surana Telecom and Power is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 121% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Surana Telecom and Power can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 4 warning signs for Surana Telecom and Power you'll probably want to know about.

While Surana Telecom and Power isn't earning the highest return, check out this free list of companies that are 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.