Why You Should Care About V-MARC India's (NSE:VMARCIND) Strong Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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, when we ran our eye over V-MARC India's (NSE:VMARCIND) trend of ROCE, we really liked what we saw.

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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. To calculate this metric for V-MARC India, this is the formula:

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

0.38 = ₹705m ÷ (₹4.9b - ₹3.1b) (Based on the trailing twelve months to September 2024).

Thus, V-MARC India has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Electrical industry average of 19%.

See our latest analysis for V-MARC India

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

What Can We Tell From V-MARC India's ROCE Trend?

It's hard not to be impressed by V-MARC India's returns on capital. The company has consistently earned 38% for the last five years, and the capital employed within the business has risen 390% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

On a side note, V-MARC India's current liabilities are still rather high at 63% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 500% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to know some of the risks facing V-MARC India we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.