Clean Science and Technology (NSE:CLEAN) Might Become A Compounding Machine

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Clean Science and Technology's (NSE:CLEAN) ROCE trend, we were very happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Clean Science and Technology is:

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

0.39 = ₹3.5b ÷ (₹10b - ₹1.4b) (Based on the trailing twelve months to December 2022).

Thus, Clean Science and Technology has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 17%.

See our latest analysis for Clean Science and Technology

In the above chart we have measured Clean Science and Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Clean Science and Technology here for free.

The Trend Of ROCE

In terms of Clean Science and Technology's history of ROCE, it's quite impressive. The company has employed 264% more capital in the last four years, and the returns on that capital have remained stable at 39%. Now considering ROCE is an attractive 39%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

In short, we'd argue Clean Science and Technology has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, despite the favorable fundamentals, the stock has fallen 37% over the last year, 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.

While Clean Science and Technology looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CLEAN is currently trading for a fair price.

Clean Science and Technology 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.