Shareholders Would Enjoy A Repeat Of Lagnam Spintex's (NSE:LAGNAM) Recent Growth In Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. And in light of that, the trends we're seeing at Lagnam Spintex's (NSE:LAGNAM) look very promising so lets take a look.

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. The formula for this calculation on Lagnam Spintex is:

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

0.26 = ₹501m ÷ (₹2.3b - ₹444m) (Based on the trailing twelve months to December 2021).

Thus, Lagnam Spintex has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See our latest analysis for Lagnam Spintex

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're interested in investigating Lagnam Spintex's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Lagnam Spintex's ROCE Trending?

Lagnam Spintex is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 238%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

In summary, it's great to see that Lagnam Spintex can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 477% total return over the last three years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Lagnam Spintex (of which 1 is concerning!) that you should know about.

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.