Many Would Be Jealous Of VST Industries' (NSE:VSTIND) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over VST Industries' (NSE:VSTIND) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for VST Industries:

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

0.46 = ₹3.7b ÷ (₹14b - ₹5.6b) (Based on the trailing twelve months to September 2020).

So, VST Industries has an ROCE of 46%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for VST Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for VST Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of VST Industries, check out these free graphs here.

What Can We Tell From VST Industries' ROCE Trend?

It's hard not to be impressed by VST Industries' returns on capital. The company has employed 95% more capital in the last five years, and the returns on that capital have remained stable at 46%. Now considering ROCE is an attractive 46%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, VST Industries has done well to reduce current liabilities to 41% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. Although because current liabilities are still 41%, some of that risk is still prevalent.

The Bottom Line

In short, we'd argue VST Industries has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 161% 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.

While VST Industries looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VSTIND is currently trading for a fair price.

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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This article by Simply Wall St is general in nature. 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.
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