Returns On Capital At Goldiam International (NSE:GOLDIAM) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Goldiam International's (NSE:GOLDIAM) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Goldiam International:

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

0.18 = ₹1.2b ÷ (₹8.0b - ₹1.2b) (Based on the trailing twelve months to September 2024).

Thus, Goldiam International has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 11% it's much better.

Check out our latest analysis for Goldiam International

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

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 68% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Goldiam International has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 1,594% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you want to know some of the risks facing Goldiam International we've found 3 warning signs (2 are concerning!) that you should be aware of before investing here.

While Goldiam International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.