The Return Trends At Gandhi Special Tubes (NSE:GANDHITUBE) Look Promising

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Gandhi Special Tubes (NSE:GANDHITUBE) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Gandhi Special Tubes:

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

0.20 = ₹307m ÷ (₹1.8b - ₹202m) (Based on the trailing twelve months to December 2020).

So, Gandhi Special Tubes has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Metals and Mining industry.

See our latest analysis for Gandhi Special Tubes

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

How Are Returns Trending?

Gandhi Special Tubes' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 73% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. 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.

In Conclusion...

To sum it up, Gandhi Special Tubes is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 46% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Gandhi Special Tubes, we've discovered 1 warning sign that you should be aware of.

While Gandhi Special Tubes 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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