Slowing Rates Of Return At Windsor Machines (NSE:WINDMACHIN) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Windsor Machines (NSE:WINDMACHIN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Windsor Machines:

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

0.041 = ₹160m ÷ (₹5.8b - ₹1.9b) (Based on the trailing twelve months to June 2022).

Therefore, Windsor Machines has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 14%.

See our latest analysis for Windsor Machines

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

What Does the ROCE Trend For Windsor Machines Tell Us?

Things have been pretty stable at Windsor Machines, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Windsor Machines doesn't end up being a multi-bagger in a few years time.

In Conclusion...

We can conclude that in regards to Windsor Machines' returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 39% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we found 3 warning signs for Windsor Machines (1 is a bit concerning) you should be aware of.

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.