We Like These Underlying Trends At Globus Spirits (NSE:GLOBUSSPR)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Globus Spirits (NSE:GLOBUSSPR) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.20 = ₹1.3b ÷ (₹8.9b - ₹2.3b) (Based on the trailing twelve months to September 2020).

So, Globus Spirits has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 13% generated by the Beverage industry.

Check out our latest analysis for Globus Spirits

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Globus Spirits, check out these free graphs here.

So How Is Globus Spirits' ROCE Trending?

Globus Spirits is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 29%. So we're very much inspired by what we're seeing at Globus Spirits thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Globus Spirits has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 539% 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 Globus Spirits can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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