Gujarat Mineral Development (NSE:GMDCLTD) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Gujarat Mineral Development (NSE:GMDCLTD) so let's look a bit deeper.

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 Gujarat Mineral Development:

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

0.19 = ₹11b ÷ (₹63b - ₹3.6b) (Based on the trailing twelve months to September 2022).

So, Gujarat Mineral Development has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 12% it's much better.

Check out our latest analysis for Gujarat Mineral Development

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 Gujarat Mineral Development, check out these free graphs here.

How Are Returns Trending?

Gujarat Mineral Development is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 23% 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 Bottom Line On Gujarat Mineral Development's ROCE

In summary, it's great to see that Gujarat Mineral Development can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 1 warning sign for Gujarat Mineral Development that we think you should be aware of.

While Gujarat Mineral Development 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.