Returns At United Polyfab Gujarat (NSE:UNITEDPOLY) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in United Polyfab Gujarat's (NSE:UNITEDPOLY) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 United Polyfab Gujarat:

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

0.16 = ₹211m ÷ (₹2.1b - ₹805m) (Based on the trailing twelve months to June 2022).

So, United Polyfab Gujarat has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Luxury industry average of 14%.

Our analysis indicates that UNITEDPOLY is potentially undervalued!

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 want to delve into the historical earnings, revenue and cash flow of United Polyfab Gujarat, check out these free graphs here.

What Does the ROCE Trend For United Polyfab Gujarat Tell Us?

We like the trends that we're seeing from United Polyfab Gujarat. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 28%. So we're very much inspired by what we're seeing at United Polyfab Gujarat thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 38% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Bottom Line On 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. And a remarkable 495% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about United Polyfab Gujarat, we've spotted 3 warning signs, and 2 of them are a bit unpleasant.

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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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.