W.S. Industries (India) (NSE:WSI) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in W.S. Industries (India)'s (NSE:WSI) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on W.S. Industries (India) is:

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

0.13 = ₹384m ÷ (₹4.4b - ₹1.4b) (Based on the trailing twelve months to September 2024).

So, W.S. Industries (India) has an ROCE of 13%. In isolation, that's a pretty standard return but against the Machinery industry average of 16%, it's not as good.

See our latest analysis for W.S. Industries (India)

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

The Trend Of ROCE

We're delighted to see that W.S. Industries (India) is reaping rewards from its investments and is now generating some pre-tax profits. About two years ago the company was generating losses but things have turned around because it's now earning 13% on its capital. In addition to that, W.S. Industries (India) is employing 742% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, W.S. Industries (India) has decreased current liabilities to 31% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On W.S. Industries (India)'s ROCE

To the delight of most shareholders, W.S. Industries (India) has now broken into profitability. And a remarkable 6,019% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with W.S. Industries (India) (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.

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.