Capital Investment Trends At Donear Industries (NSE:DONEAR) Look Strong

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Donear Industries (NSE:DONEAR), we liked what we saw.

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

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 Donear Industries:

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

0.31 = ₹510m ÷ (₹6.1b - ₹4.4b) (Based on the trailing twelve months to June 2022).

So, Donear Industries has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Donear Industries

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

What Does the ROCE Trend For Donear Industries Tell Us?

In terms of Donear Industries' history of ROCE, it's quite impressive. The company has consistently earned 31% for the last five years, and the capital employed within the business has risen 44% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Donear Industries can keep this up, we'd be very optimistic about its future.

On a side note, Donear Industries' current liabilities are still rather high at 73% 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

In summary, we're delighted to see that Donear Industries has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock has only delivered a 10% return to shareholders who held over that period. So to determine if Donear Industries is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing: We've identified 3 warning signs with Donear Industries (at least 2 which make us uncomfortable) , and understanding these would certainly be useful.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.