Globus Spirits (NSE:GLOBUSSPR) Is Investing Its Capital With Increasing Efficiency

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Globus Spirits' (NSE:GLOBUSSPR) look very promising so lets take a look.

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

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. To calculate this metric for Globus Spirits, this is the formula:

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

0.20 = ₹2.1b ÷ (₹14b - ₹3.8b) (Based on the trailing twelve months to September 2022).

So, Globus Spirits has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Beverage industry average of 14%.

Check out the opportunities and risks within the IN Beverage industry.

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

What Does the ROCE Trend For Globus Spirits Tell Us?

We like the trends that we're seeing from Globus Spirits. The data shows that returns on capital have increased substantially over the last five years to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 90% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Globus Spirits' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Globus Spirits has. Since the stock has returned a staggering 540% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Globus Spirits (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

Globus Spirits is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.