Returns on Capital Paint A Bright Future For Gillette India (NSE:GILLETTE)

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. 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. 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 looked at the ROCE trend of Gillette India (NSE:GILLETTE) we really liked what we saw.

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. The formula for this calculation on Gillette India is:

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

0.42 = ₹3.8b ÷ (₹15b - ₹6.1b) (Based on the trailing twelve months to December 2021).

So, Gillette India has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 13%.

View our latest analysis for Gillette India

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

What The Trend Of ROCE Can Tell Us

Gillette India is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 30% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Gillette India's ROCE

In summary, we're delighted to see that Gillette India has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 36% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

Like most companies, Gillette India does come with some risks, and we've found 1 warning sign that you should be aware of.

Gillette India is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.