# Understanding Your Return On Investment In Nandani Creation Limited (NSE:NANDANI)

I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on Nandani Creation Limited (NSE:NANDANI) stock.

Buying Nandani Creation makes you a partial owner of the company. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. Your return is tied to NANDANI’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. Thus, to understand how your money can grow by investing in Nandani Creation, you need to look at what the company returns to owners for the use of their capital, which can be done in many ways but today we will use return on capital employed (ROCE).

### Calculating Return On Capital Employed for NANDANI

Choosing to invest in Nandani Creation comes at the cost of investing in another potentially favourable company. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. We’ll look at Nandani Creation’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. NANDANI’s ROCE is calculated below:

ROCE Calculation for NANDANI

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = ₹6.50m ÷ (₹53.11m – ₹35.52m) = 36.94%

NANDANI’s 36.94% ROCE means that for every ₹100 you invest, the company creates ₹36.9. This shows Nandani Creation provides a great return on capital employed that is well above the 15% ROCE that is typically considered to be a strong benchmark. As a result, if NANDANI is clever with their reinvestments or dividend payments, investors can grow their capital at an enviable rate over time.

### Before moving forward

Although Nandani Creation is in a favourable position, you should know that this could change if the company is unable to maintain a strong ROCE above the benchmark, which will depend on the behaviour of the underlying variables (EBT and capital employed). Therefore, investors need to be confident in the trend of the inputs in the formula above, so that Nandani Creation will continue the solid returns. Looking three years in the past, it is evident that NANDANI’s ROCE has risen from 13.44%, indicating the company’s capital returns have stengthened. Similarly, the movement in the earnings variable shows a jump from ₹24.92k to ₹6.50m whilst capital employed improved as well albeit by a relatively smaller amount, signifying ROCE increased as a result of a greater surge in earnings compared to the business’ use of capital.

### Next Steps

NANDANI’s investors have enjoyed an upward trend in ROCE and it is currently at a level that makes the company an attractive candidate that is capable of producing solid capital returns, and hence, an attractive return on investment. As an investor this is the type of situation you look for, but return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and management ability. It’s important to account for these factors because you cannot be sure if this trend will continue or reverse due to reasons that cannot be seen by looking in the past. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate NANDANI or other alternatives.

1. Future Outlook: What are well-informed industry analysts predicting for NANDANI’s future growth? Take a look at our free research report of analyst consensus for NANDANI’s outlook.
2. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Nandani Creation’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.