Nahar Industrial Enterprises (NSE:NAHARINDUS) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Nahar Industrial Enterprises' (NSE:NAHARINDUS) returns on capital, so let's have 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. 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)

0.088 = ₹924m ÷ (₹14b - ₹3.1b) (Based on the trailing twelve months to June 2023).

Thus, Nahar Industrial Enterprises has an ROCE of 8.8%. In absolute terms, that's a low return but it's around the Luxury industry average of 10%.

Check out our latest analysis for Nahar Industrial Enterprises

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'd like to look at how Nahar Industrial Enterprises has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Nahar Industrial Enterprises' ROCE Trending?

Nahar Industrial Enterprises has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 24% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

One more thing to note, Nahar Industrial Enterprises has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Nahar Industrial Enterprises has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

To bring it all together, Nahar Industrial Enterprises has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 145% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

Nahar Industrial Enterprises does have some risks though, and we've spotted 4 warning signs for Nahar Industrial Enterprises that you might be interested in.

While Nahar Industrial Enterprises isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.