Capital Investments At Indo Count Industries (NSE:ICIL) Point To A Promising Future

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So, when we ran our eye over Indo Count Industries' (NSE:ICIL) trend of ROCE, we really 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. The formula for this calculation on Indo Count Industries is:

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

0.21 = ₹3.8b ÷ (₹32b - ₹13b) (Based on the trailing twelve months to September 2022).

Thus, Indo Count Industries has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Luxury industry average of 13%.

View our latest analysis for Indo Count Industries

Above you can see how the current ROCE for Indo Count Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Indo Count Industries Tell Us?

Indo Count Industries deserves to be commended in regards to it's returns. The company has employed 73% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Indo Count Industries' current liabilities are still rather high at 42% 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

Indo Count Industries has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 3.7% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a final note, we found 3 warning signs for Indo Count Industries (2 are significant) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.