Globus Spirits (NSE:GLOBUSSPR) Knows How To Allocate Capital Effectively

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher 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.

What is Return On Capital Employed (ROCE)?

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 Globus Spirits is:

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

0.25 = ₹1.6b ÷ (₹8.9b - ₹2.3b) (Based on the trailing twelve months to December 2020).

So, Globus Spirits has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Beverage industry average of 14%.

See our latest analysis for Globus Spirits

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.

How Are Returns Trending?

Investors would be pleased with what's happening at Globus Spirits. The data shows that returns on capital have increased substantially over the last five years to 25%. The amount of capital employed has increased too, by 29%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Globus Spirits' ROCE

In summary, it's great to see that Globus Spirits can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 385% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Globus Spirits that you might find interesting.

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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