Why We Like The Returns At Vadilal Industries (NSE:VADILALIND)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Vadilal Industries' (NSE:VADILALIND) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Vadilal Industries is:

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

0.25 = ₹2.0b ÷ (₹9.7b - ₹1.6b) (Based on the trailing twelve months to September 2024).

Thus, Vadilal Industries has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Food industry average of 12%.

Check out our latest analysis for Vadilal Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vadilal Industries' ROCE against it's prior returns. If you'd like to look at how Vadilal Industries has performed in the past in other metrics, you can view this free graph of Vadilal Industries' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Vadilal Industries. Over the last five years, returns on capital employed have risen substantially to 25%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 124%. So we're very much inspired by what we're seeing at Vadilal Industries thanks to its ability to profitably reinvest capital.

The Bottom Line On Vadilal Industries' 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 Vadilal Industries has. Since the stock has returned a staggering 344% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Vadilal Industries looks impressive, no company is worth an infinite price. The intrinsic value infographic for VADILALIND helps visualize whether it is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.