The Trend Of High Returns At Gujarat Ambuja Exports (NSE:GAEL) Has Us Very Interested

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Gujarat Ambuja Exports (NSE:GAEL) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Gujarat Ambuja Exports, this is the formula:

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

0.30 = ₹5.7b ÷ (₹23b - ₹4.1b) (Based on the trailing twelve months to December 2021).

Therefore, Gujarat Ambuja Exports has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Food industry average of 13%.

View our latest analysis for Gujarat Ambuja Exports

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

What Can We Tell From Gujarat Ambuja Exports' ROCE Trend?

Gujarat Ambuja Exports is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 30%. The amount of capital employed has increased too, by 101%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

To sum it up, Gujarat Ambuja Exports has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 292% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Gujarat Ambuja Exports can keep these trends up, it could have a bright future ahead.

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 that compares the share price and estimated value.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.