Windsor Machines (NSE:WINDMACHIN) Hasn't Managed To Accelerate Its Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Windsor Machines (NSE:WINDMACHIN), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.046 = ₹180m ÷ (₹5.8b - ₹1.9b) (Based on the trailing twelve months to March 2022).

Therefore, Windsor Machines has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Machinery industry average of 14%.

View 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 want to delve into the historical earnings, revenue and cash flow of Windsor Machines, check out these free graphs here.

What Does the ROCE Trend For Windsor Machines Tell Us?

Over the past five years, Windsor Machines' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's 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.

Our Take On Windsor Machines' ROCE

We can conclude that in regards to Windsor Machines' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 25% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Windsor Machines has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Windsor Machines (of which 1 is a bit concerning!) that you should know about.

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.