A Look Into Galaxy Surfactants' (NSE:GALAXYSURF) Impressive Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ergo, when we looked at the ROCE trends at Galaxy Surfactants (NSE:GALAXYSURF), we 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. To calculate this metric for Galaxy Surfactants, this is the formula:

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

0.28 = ₹4.0b ÷ (₹20b - ₹6.2b) (Based on the trailing twelve months to June 2021).

Thus, Galaxy Surfactants has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for Galaxy Surfactants

In the above chart we have measured Galaxy Surfactants' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Galaxy Surfactants' ROCE Trend?

It's hard not to be impressed by Galaxy Surfactants' returns on capital. Over the past five years, ROCE has remained relatively flat at around 28% and the business has deployed 112% more capital into its operations. Now considering ROCE is an attractive 28%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Galaxy Surfactants can keep this up, we'd be very optimistic about its future.

Our Take On Galaxy Surfactants' ROCE

In summary, we're delighted to see that Galaxy Surfactants 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 166% return they've received over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Galaxy Surfactants does have some risks though, and we've spotted 1 warning sign for Galaxy Surfactants that you might be interested in.

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.

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.

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