W.S. Industries (India)'s (NSE:WSI) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at W.S. Industries (India) (NSE:WSI) and its trend of ROCE, we really liked what we saw.

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Understanding 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. 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)

0.074 = ₹226m ÷ (₹4.4b - ₹1.4b) (Based on the trailing twelve months to December 2024).

Therefore, W.S. Industries (India) has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 16%.

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of W.S. Industries (India).

What Can We Tell From W.S. Industries (India)'s ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last two years, returns on capital employed have risen substantially to 7.4%. The amount of capital employed has increased too, by 742%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. 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.

What We Can Learn From W.S. Industries (India)'s ROCE

All in all, it's terrific to see that W.S. Industries (India) is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 7,713% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

W.S. Industries (India) does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While W.S. Industries (India) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.