Returns At Selan Exploration Technology (NSE:SELAN) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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, we've noticed some promising trends at Selan Exploration Technology (NSE:SELAN) so let's look a bit deeper.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Selan Exploration Technology, this is the formula:

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

0.17 = ₹839m ÷ (₹5.3b - ₹227m) (Based on the trailing twelve months to December 2024).

Therefore, Selan Exploration Technology has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 10% it's much better.

Check out our latest analysis for Selan Exploration Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Selan Exploration Technology's ROCE against it's prior returns. If you're interested in investigating Selan Exploration Technology's past further, check out this free graph covering Selan Exploration Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Selan Exploration Technology Tell Us?

The trends we've noticed at Selan Exploration Technology are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 31%. So we're very much inspired by what we're seeing at Selan Exploration Technology thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Selan Exploration Technology is reaping the rewards from prior investments and is growing its capital base. And a remarkable 637% 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.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for SELAN that compares the share price and estimated value.

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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.