The Return Trends At Ruby Mills (NSE:RUBYMILLS) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Ruby Mills (NSE:RUBYMILLS) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Ruby Mills:

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

0.059 = ₹470m ÷ (₹8.7b - ₹811m) (Based on the trailing twelve months to March 2024).

Thus, Ruby Mills has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 10%.

See our latest analysis for Ruby Mills

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

So How Is Ruby Mills' ROCE Trending?

Ruby Mills' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 82% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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.

Our Take On Ruby Mills' ROCE

In summary, we're delighted to see that Ruby Mills has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 250% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Ruby Mills can keep these trends up, it could have a bright future ahead.

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

While Ruby Mills may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

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