Essen Speciality Films (NSE:ESFL) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Essen Speciality Films' (NSE:ESFL) ROCE trend, we were pretty happy with what we saw.

Understanding 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 Essen Speciality Films is:

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

0.15 = ₹225m ÷ (₹1.8b - ₹281m) (Based on the trailing twelve months to December 2024).

Therefore, Essen Speciality Films has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Durables industry.

Check out our latest analysis for Essen Speciality Films

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Essen Speciality Films has performed in the past in other metrics, you can view this free graph of Essen Speciality Films' past earnings, revenue and cash flow.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. Over the past four years, ROCE has remained relatively flat at around 15% and the business has deployed 122% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Essen Speciality Films has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 173% return they've received over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 2 warning signs for Essen Speciality Films that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.