Capital Investment Trends At Cosmo Films (NSE:COSMOFILMS) Look Strong

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Cosmo Films' (NSE:COSMOFILMS) trend of ROCE, we really liked what we saw.

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

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 Cosmo Films:

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

0.22 = ₹3.1b ÷ (₹21b - ₹6.9b) (Based on the trailing twelve months to December 2020).

So, Cosmo Films has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Packaging industry average of 13%.

See our latest analysis for Cosmo Films

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

What Can We Tell From Cosmo Films' ROCE Trend?

In terms of Cosmo Films' history of ROCE, it's quite impressive. The company has consistently earned 22% for the last five years, and the capital employed within the business has risen 88% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Cosmo Films can keep this up, we'd be very optimistic about its future.

The Bottom Line On Cosmo Films' ROCE

In summary, we're delighted to see that Cosmo Films has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 152% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we've found 3 warning signs for Cosmo Films that we think you should be aware of.

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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