These Trends Paint A Bright Future For Ginni Filaments (NSE:GINNIFILA)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Ginni Filaments (NSE:GINNIFILA) we really liked what we saw.

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 Ginni Filaments:

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

0.23 = ₹711m ÷ (₹4.8b - ₹1.7b) (Based on the trailing twelve months to December 2020).

Thus, Ginni Filaments has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.

View our latest analysis for Ginni Filaments

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

The Trend Of ROCE

Ginni Filaments is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 33% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a related note, the company's ratio of current liabilities to total assets has decreased to 36%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

To sum it up, Ginni Filaments is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Ginni Filaments (of which 1 shouldn't be ignored!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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