Nahar Industrial Enterprises (NSE:NAHARINDUS) Is Achieving High Returns On Its Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Nahar Industrial Enterprises' (NSE:NAHARINDUS) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

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 Nahar Industrial Enterprises:

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

0.27 = ₹2.6b ÷ (₹15b - ₹5.9b) (Based on the trailing twelve months to December 2021).

So, Nahar Industrial Enterprises has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out 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 want to delve into the historical earnings, revenue and cash flow of Nahar Industrial Enterprises, check out these free graphs here.

The Trend Of ROCE

Nahar Industrial Enterprises is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 97% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

In summary, we're delighted to see that Nahar Industrial Enterprises has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 53% return over the last five years. In light of that, we think it's worth looking further into this stock because if Nahar Industrial Enterprises can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Nahar Industrial Enterprises (including 1 which makes us a bit uncomfortable) .

Nahar Industrial Enterprises is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.