AYM Syntex (NSE:AYMSYNTEX) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in AYM Syntex's (NSE:AYMSYNTEX) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on AYM Syntex is:

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

0.18 = ₹1.1b ÷ (₹9.3b - ₹3.5b) (Based on the trailing twelve months to June 2022).

Thus, AYM Syntex has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 14% it's much better.

See our latest analysis for AYM Syntex

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

So How Is AYM Syntex's ROCE Trending?

The trends we've noticed at AYM Syntex are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On AYM Syntex's ROCE

To sum it up, AYM Syntex has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 21% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with AYM Syntex (including 1 which is a bit unpleasant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.