Investors Should Be Encouraged By Voltamp Transformers' (NSE:VOLTAMP) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Voltamp Transformers (NSE:VOLTAMP) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Voltamp Transformers:

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

0.25 = ₹3.4b ÷ (₹15b - ₹1.5b) (Based on the trailing twelve months to June 2024).

So, Voltamp Transformers has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.

View our latest analysis for Voltamp Transformers

In the above chart we have measured Voltamp Transformers' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Voltamp Transformers for free.

How Are Returns Trending?

Investors would be pleased with what's happening at Voltamp Transformers. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 97%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Voltamp Transformers is reaping the rewards from prior investments and is growing its capital base. And a remarkable 1,138% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Voltamp Transformers can keep these trends up, it could have a bright future ahead.

While Voltamp Transformers looks impressive, no company is worth an infinite price. The intrinsic value infographic for VOLTAMP 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.