The Return Trends At Voltamp Transformers (NSE:VOLTAMP) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 when we looked at Voltamp Transformers (NSE:VOLTAMP) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Voltamp Transformers, this is the formula:

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

0.11 = ₹970m ÷ (₹10b - ₹1.2b) (Based on the trailing twelve months to December 2021).

Thus, Voltamp Transformers has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electrical industry average of 12%.

Check out our latest analysis for Voltamp Transformers

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

What Can We Tell From Voltamp Transformers' ROCE Trend?

Voltamp Transformers is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 78%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

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 Voltamp Transformers has. And a remarkable 142% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 4 warning signs we've spotted with Voltamp Transformers (including 1 which is significant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.