Investors Will Want Nitin Spinners' (NSE:NITINSPIN) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Nitin Spinners (NSE:NITINSPIN) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Nitin Spinners, this is the formula:

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

0.15 = ₹3.2b ÷ (₹27b - ₹5.9b) (Based on the trailing twelve months to December 2024).

Thus, Nitin Spinners has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Luxury industry.

Check out our latest analysis for Nitin Spinners

Above you can see how the current ROCE for Nitin Spinners compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Nitin Spinners .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Nitin Spinners. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 70%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Nitin Spinners is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Nitin Spinners can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Nitin Spinners we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Nitin Spinners isn't earning the highest return, check out this free list of companies that are 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.