Under The Bonnet, Cantabil Retail India's (NSE:CANTABIL) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 Cantabil Retail India's (NSE:CANTABIL) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Cantabil Retail India:

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

0.22 = ₹1.1b ÷ (₹6.8b - ₹1.8b) (Based on the trailing twelve months to September 2023).

Thus, Cantabil Retail India has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Luxury industry average of 10%.

Check out our latest analysis for Cantabil Retail India

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cantabil Retail India's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Cantabil Retail India, check out these free graphs here.

What Does the ROCE Trend For Cantabil Retail India Tell Us?

Cantabil Retail India is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 22%. Basically the business is earning more per dollar of capital invested and in addition to that, 302% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 26%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Cantabil Retail India has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Cantabil Retail India's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Cantabil Retail India has. And with the stock having performed exceptionally well over the last five 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.

One more thing, we've spotted 1 warning sign facing Cantabil Retail India that you might find interesting.

Cantabil Retail India 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.