Chaman Lal Setia Exports (NSE:CLSEL) Looks To Prolong Its Impressive Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. That's why when we briefly looked at Chaman Lal Setia Exports' (NSE:CLSEL) ROCE trend, we were very happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Chaman Lal Setia Exports is:

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

0.21 = ₹1.5b ÷ (₹8.7b - ₹1.5b) (Based on the trailing twelve months to September 2024).

So, Chaman Lal Setia Exports has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for Chaman Lal Setia Exports

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chaman Lal Setia Exports' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Chaman Lal Setia Exports.

What Can We Tell From Chaman Lal Setia Exports' ROCE Trend?

It's hard not to be impressed by Chaman Lal Setia Exports' returns on capital. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 161% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

In short, we'd argue Chaman Lal Setia Exports has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 262% return they've received over the last three years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing: We've identified 3 warning signs with Chaman Lal Setia Exports (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.