Indian Railway Catering & Tourism (NSE:IRCTC) Is Aiming To Keep Up Its Impressive Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Indian Railway Catering & Tourism's (NSE:IRCTC) ROCE trend, we were very happy with 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. To calculate this metric for Indian Railway Catering & Tourism, this is the formula:

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

0.39 = ₹15b ÷ (₹68b - ₹30b) (Based on the trailing twelve months to December 2024).

Therefore, Indian Railway Catering & Tourism has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 16%.

See our latest analysis for Indian Railway Catering & Tourism

In the above chart we have measured Indian Railway Catering & Tourism's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Indian Railway Catering & Tourism .

The Trend Of ROCE

It's hard not to be impressed by Indian Railway Catering & Tourism's returns on capital. The company has employed 195% more capital in the last five years, and the returns on that capital have remained stable at 39%. 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, Indian Railway Catering & Tourism has done well to reduce current liabilities to 45% 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 45%, some of that risk is still prevalent.

The Bottom Line

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 180% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Indian Railway Catering & Tourism does have some risks though, and we've spotted 1 warning sign for Indian Railway Catering & Tourism that you might be interested in.

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.