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Shareholders Are Optimistic That Likhitha Infrastructure (NSE:LIKHITHA) Will Multiply In Value
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, the ROCE of Likhitha Infrastructure (NSE:LIKHITHA) looks attractive right now, so lets see what the trend of returns can tell us.
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. The formula for this calculation on Likhitha Infrastructure is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = ₹691m ÷ (₹2.4b - ₹187m) (Based on the trailing twelve months to September 2022).
Therefore, Likhitha Infrastructure has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 6.8% earned by companies in a similar industry.
View our latest analysis for Likhitha Infrastructure
Historical performance is a great place to start when researching a stock so above you can see the gauge for Likhitha Infrastructure's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Likhitha Infrastructure, check out these free graphs here.
What Can We Tell From Likhitha Infrastructure's ROCE Trend?
It's hard not to be impressed by Likhitha Infrastructure's returns on capital. The company has employed 613% more capital in the last five years, and the returns on that capital have remained stable at 32%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Likhitha Infrastructure can keep this up, we'd be very optimistic about its future.
On a side note, Likhitha Infrastructure has done well to reduce current liabilities to 7.9% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
What We Can Learn From Likhitha Infrastructure's ROCE
Likhitha Infrastructure has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing: We've identified 4 warning signs with Likhitha Infrastructure (at least 1 which is a bit concerning) , and understanding these would certainly be useful.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
About NSEI:LIKHITHA
Likhitha Infrastructure
Engages in laying, erection, testing, and commissioning of oil and gas pipelines in India.
Flawless balance sheet with questionable track record.