Super Spinning Mills (NSE:SUPERSPIN) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Super Spinning Mills (NSE:SUPERSPIN) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Super Spinning Mills:

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

0.051 = ₹62m ÷ (₹1.6b - ₹388m) (Based on the trailing twelve months to March 2022).

Therefore, Super Spinning Mills has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Luxury industry average of 13%.

Check out our latest analysis for Super Spinning Mills

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

What Does the ROCE Trend For Super Spinning Mills Tell Us?

We're delighted to see that Super Spinning Mills is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 26% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Super Spinning Mills could be selling under-performing assets since the ROCE is improving.

One more thing to note, Super Spinning Mills has decreased current liabilities to 24% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Super Spinning Mills has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

From what we've seen above, Super Spinning Mills has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 45% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Super Spinning Mills does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.