The Return Trends At Swelect Energy Systems (NSE:SWELECTES) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So on that note, Swelect Energy Systems (NSE:SWELECTES) looks quite promising in regards to its trends of return on capital.

Understanding 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 Swelect Energy Systems is:

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

0.039 = ₹416m ÷ (₹16b - ₹4.8b) (Based on the trailing twelve months to September 2023).

So, Swelect Energy Systems has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 17%.

View our latest analysis for Swelect Energy Systems

Historical performance is a great place to start when researching a stock so above you can see the gauge for Swelect Energy Systems' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Swelect Energy Systems, check out these free graphs here.

What Can We Tell From Swelect Energy Systems' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. So we're very much inspired by what we're seeing at Swelect Energy Systems thanks to its ability to profitably reinvest capital.

The Bottom Line On Swelect Energy Systems' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Swelect Energy Systems has. Since the stock has returned a staggering 210% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for Swelect Energy Systems you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.