Returns At Welspun Living (NSE:WELSPUNLIV) Appear To Be Weighed Down

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. With that in mind, the ROCE of Welspun Living (NSE:WELSPUNLIV) looks decent, right now, so lets see what the trend of returns can tell us.

What Is 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. To calculate this metric for Welspun Living, this is the formula:

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

0.15 = ₹9.7b ÷ (₹96b - ₹31b) (Based on the trailing twelve months to March 2024).

So, Welspun Living has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Luxury industry.

See our latest analysis for Welspun Living

In the above chart we have measured Welspun Living's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Welspun Living .

What Can We Tell From Welspun Living's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 33% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Welspun Living has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 188% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Welspun Living could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for WELSPUNLIV on our platform quite valuable.

While Welspun Living 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.

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