Stock Analysis

Returns on Capital Paint A Bright Future For Nahar Spinning Mills (NSE:NAHARSPING)

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NSEI:NAHARSPING
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Nahar Spinning Mills (NSE:NAHARSPING) looks great, so lets see what the trend can tell us.

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 Spinning Mills:

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

0.29 = ₹5.3b ÷ (₹22b - ₹3.9b) (Based on the trailing twelve months to September 2022).

Therefore, Nahar Spinning Mills has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for Nahar Spinning Mills

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NSEI:NAHARSPING Return on Capital Employed December 1st 2022

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.

How Are Returns Trending?

We're delighted to see that Nahar Spinning Mills is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 29% on its capital. And unsurprisingly, like most companies trying to break into the black, Nahar Spinning Mills is utilizing 91% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Nahar Spinning Mills' ROCE

Long story short, we're delighted to see that Nahar Spinning Mills' reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Nahar Spinning Mills does have some risks though, and we've spotted 1 warning sign for Nahar Spinning Mills that you might be interested in.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Nahar Spinning Mills is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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