We Like These Underlying Return On Capital Trends At Windsor Machines (NSE:WINDMACHIN)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Windsor Machines (NSE:WINDMACHIN) so let's look a bit deeper.

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 Windsor Machines, this is the formula:

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

0.074 = ₹295m ÷ (₹5.8b - ₹1.8b) (Based on the trailing twelve months to June 2023).

Thus, Windsor Machines has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 17%.

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'd like to look at how Windsor Machines has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Windsor Machines is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 106% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

To sum it up, Windsor Machines is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 21% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Windsor Machines, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

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.