Returns Are Gaining Momentum At United Polyfab Gujarat (NSE:UNITEDPOLY)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in United Polyfab Gujarat's (NSE:UNITEDPOLY) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for United Polyfab Gujarat:

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

0.063 = ₹101m ÷ (₹1.8b - ₹222m) (Based on the trailing twelve months to September 2020).

Thus, United Polyfab Gujarat has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Luxury industry average of 9.6%.

View our latest analysis for United Polyfab Gujarat

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating United Polyfab Gujarat's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From United Polyfab Gujarat's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 6.3%. Basically the business is earning more per dollar of capital invested and in addition to that, 524% more capital is being employed now too. So we're very much inspired by what we're seeing at United Polyfab Gujarat thanks to its ability to profitably reinvest capital.

What We Can Learn From United Polyfab Gujarat's ROCE

All in all, it's terrific to see that United Polyfab Gujarat is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 22% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we found 4 warning signs for United Polyfab Gujarat (3 shouldn't be ignored) you should be aware of.

While United Polyfab Gujarat 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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