Shareholders Are Optimistic That Ion Exchange (India) (NSE:IONEXCHANG) Will Multiply In Value

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. That's why when we briefly looked at Ion Exchange (India)'s (NSE:IONEXCHANG) ROCE trend, we were very happy with what we saw.

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. Analysts use this formula to calculate it for Ion Exchange (India):

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

0.25 = ₹2.5b ÷ (₹21b - ₹11b) (Based on the trailing twelve months to December 2023).

So, Ion Exchange (India) has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 18%.

Check out our latest analysis for Ion Exchange (India)

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

What Does the ROCE Trend For Ion Exchange (India) Tell Us?

In terms of Ion Exchange (India)'s history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 254% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Ion Exchange (India) has done well to reduce current liabilities to 51% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 51%, some of that risk is still prevalent.

What We Can Learn From Ion Exchange (India)'s ROCE

In summary, we're delighted to see that Ion Exchange (India) has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Ion Exchange (India) that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.