What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Having said that, from a first glance at Antony Waste Handling Cell (NSE:AWHCL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Antony Waste Handling Cell is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = ₹1.0b ÷ (₹8.6b - ₹2.2b) (Based on the trailing twelve months to December 2021).
So, Antony Waste Handling Cell has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Commercial Services industry.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Antony Waste Handling Cell's ROCE against it's prior returns. If you're interested in investigating Antony Waste Handling Cell's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Antony Waste Handling Cell's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 22% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On Antony Waste Handling Cell's ROCE
While returns have fallen for Antony Waste Handling Cell in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 15% over the last year, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
One more thing, we've spotted 2 warning signs facing Antony Waste Handling Cell that you might find interesting.
While Antony Waste Handling Cell isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.