Investors Shouldn't Overlook Nahar Spinning Mills' (NSE:NAHARSPING) Impressive Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. With that in mind, the ROCE of Nahar Spinning Mills (NSE:NAHARSPING) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Nahar Spinning Mills is:

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

0.50 = ₹6.7b ÷ (₹22b - ₹8.6b) (Based on the trailing twelve months to December 2021).

So, Nahar Spinning Mills has an ROCE of 50%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Nahar Spinning Mills

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

So How Is Nahar Spinning Mills' ROCE Trending?

Nahar Spinning Mills is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 50%. 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 22%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

To sum it up, Nahar Spinning Mills has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Nahar Spinning Mills, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.