Under The Bonnet, Indian Railway Catering & Tourism's (NSE:IRCTC) Returns Look Impressive

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Speaking of which, we noticed some great changes in Indian Railway Catering & Tourism's (NSE:IRCTC) returns on capital, so let's have a look.

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 Indian Railway Catering & Tourism:

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

0.43 = ₹13b ÷ (₹55b - ₹25b) (Based on the trailing twelve months to September 2023).

So, Indian Railway Catering & Tourism has an ROCE of 43%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

Check out our latest analysis for Indian Railway Catering & Tourism

Above you can see how the current ROCE for Indian Railway Catering & Tourism compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Indian Railway Catering & Tourism is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 43%. The amount of capital employed has increased too, by 183%. So we're very much inspired by what we're seeing at Indian Railway Catering & Tourism thanks to its ability to profitably reinvest capital.

One more thing to note, Indian Railway Catering & Tourism has decreased current liabilities to 44% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

What We Can Learn From Indian Railway Catering & Tourism's ROCE

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. Since the stock has returned a staggering 169% to shareholders over the last three years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Indian Railway Catering & Tourism can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Indian Railway Catering & Tourism (including 1 which is potentially serious) .

Indian Railway Catering & Tourism is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.