Will Eveready Industries India (NSE:EVEREADY) Multiply In Value Going Forward?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of Eveready Industries India (NSE:EVEREADY) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Eveready Industries India:

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

0.20 = ₹1.6b ÷ (₹13b - ₹4.8b) (Based on the trailing twelve months to September 2020).

So, Eveready Industries India has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Household Products industry average of 16% it's much better.

Check out our latest analysis for Eveready Industries India

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

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 68% in that time. 20% is a pretty standard return, and it provides some comfort knowing that Eveready Industries India has consistently earned this amount. 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.

The Bottom Line On Eveready Industries India's ROCE

The main thing to remember is that Eveready Industries India has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 31% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, Eveready Industries India does come with some risks, and we've found 3 warning signs that you should be aware of.

While Eveready Industries India isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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