Nahar Industrial Enterprises (NSE:NAHARINDUS) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential 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. However, after briefly looking over the numbers, we don't think Nahar Industrial Enterprises (NSE:NAHARINDUS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Nahar Industrial Enterprises:

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

0.038 = ₹434m ÷ (₹16b - ₹4.4b) (Based on the trailing twelve months to December 2024).

Thus, Nahar Industrial Enterprises has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 12%.

See our latest analysis for Nahar Industrial Enterprises

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

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Nahar Industrial Enterprises in recent years. Over the past five years, ROCE has remained relatively flat at around 3.8% and the business has deployed 23% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 28% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

As we've seen above, Nahar Industrial Enterprises' returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 426% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One final note, you should learn about the 2 warning signs we've spotted with Nahar Industrial Enterprises (including 1 which makes us a bit uncomfortable) .

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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.