Will The ROCE Trend At Uniphos Enterprises (NSE:UNIENTER) Continue?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Uniphos Enterprises (NSE:UNIENTER) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Uniphos Enterprises, this is the formula:

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

0.013 = ₹204m ÷ (₹15b - ₹7.1m) (Based on the trailing twelve months to March 2020).

Therefore, Uniphos Enterprises has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 6.6%.

Check out our latest analysis for Uniphos Enterprises

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Uniphos Enterprises' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Uniphos Enterprises Tell Us?

We're delighted to see that Uniphos Enterprises is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.3% on its capital. And unsurprisingly, like most companies trying to break into the black, Uniphos Enterprises is utilizing 458% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Uniphos Enterprises' ROCE

Long story short, we're delighted to see that Uniphos Enterprises' reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 44% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Uniphos Enterprises does have some risks though, and we've spotted 3 warning signs for Uniphos Enterprises that you might be interested in.

While Uniphos Enterprises 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. 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.
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