Godfrey Phillips India (NSE:GODFRYPHLP) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Godfrey Phillips India (NSE:GODFRYPHLP) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. To calculate this metric for Godfrey Phillips India, this is the formula:

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

0.16 = ₹8.2b ÷ (₹65b - ₹14b) (Based on the trailing twelve months to September 2024).

Thus, Godfrey Phillips India has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.

View our latest analysis for Godfrey Phillips India

Above you can see how the current ROCE for Godfrey Phillips India compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Godfrey Phillips India .

What Does the ROCE Trend For Godfrey Phillips India Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 96% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

In the end, Godfrey Phillips India has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 356% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Godfrey Phillips India does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While Godfrey Phillips India may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.