Indian Railway Catering & Tourism (NSE:IRCTC) Could Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 the ROCE trend of Indian Railway Catering & Tourism (NSE:IRCTC) we really liked what we saw.

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. Analysts use this formula to calculate it for Indian Railway Catering & Tourism:

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

0.48 = ₹12b ÷ (₹45b - ₹21b) (Based on the trailing twelve months to December 2022).

Thus, Indian Railway Catering & Tourism has an ROCE of 48%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 14%.

See our latest analysis for Indian Railway Catering & Tourism

Historical performance is a great place to start when researching a stock so above you can see the gauge for Indian Railway Catering & Tourism's ROCE against it's prior returns. If you're interested in investigating Indian Railway Catering & Tourism's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Indian Railway Catering & Tourism's ROCE Trending?

The trends we've noticed at Indian Railway Catering & Tourism are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 48%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 156%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Indian Railway Catering & Tourism's current liabilities are still rather high at 46% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

All in all, it's terrific to see that Indian Railway Catering & Tourism is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. 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.

Like most companies, Indian Railway Catering & Tourism does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.