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

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, United Polyfab Gujarat (NSE:UNITEDPOLY) looks quite promising in regards to its trends of return on capital.

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 United Polyfab Gujarat, this is the formula:

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

0.099 = ₹149m ÷ (₹1.9b - ₹357m) (Based on the trailing twelve months to December 2021).

Thus, United Polyfab Gujarat has an ROCE of 9.9%. Ultimately, that's a low return and it under-performs the Luxury industry average of 14%.

See our latest analysis for United Polyfab Gujarat

Historical performance is a great place to start when researching a stock so above you can see the gauge for United Polyfab Gujarat's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of United Polyfab Gujarat, check out these free graphs here.

So How Is United Polyfab Gujarat's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 9.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 135% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, United Polyfab Gujarat has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 1,189% total return over the last three 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 United Polyfab Gujarat can keep these trends up, it could have a bright future ahead.

United Polyfab Gujarat does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While United Polyfab Gujarat 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.

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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.