United Spirits (NSE:MCDOWELL-N) Is Aiming To Keep Up Its Impressive Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over United Spirits' (NSE:MCDOWELL-N) trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for United Spirits:

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

0.28 = ₹13b ÷ (₹90b - ₹44b) (Based on the trailing twelve months to December 2021).

Thus, United Spirits has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Beverage industry average of 13%.

See our latest analysis for United Spirits

Above you can see how the current ROCE for United Spirits compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering United Spirits here for free.

How Are Returns Trending?

It's hard not to be impressed by United Spirits' returns on capital. Over the past five years, ROCE has remained relatively flat at around 28% and the business has deployed 78% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If United Spirits can keep this up, we'd be very optimistic about its future.

On a side note, United Spirits has done well to reduce current liabilities to 49% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

Our Take On United Spirits' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has followed suit returning a meaningful 85% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.