Why We Like The Returns At Gandhi Special Tubes (NSE:GANDHITUBE)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Gandhi Special Tubes' (NSE:GANDHITUBE) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Gandhi Special Tubes, this is the formula:

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

0.32 = ₹551m ÷ (₹1.9b - ₹146m) (Based on the trailing twelve months to December 2022).

Therefore, Gandhi Special Tubes has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar 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'd like to look at how Gandhi Special Tubes has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Gandhi Special Tubes. The figures show that over the last five years, returns on capital have grown by 92%. The company is now earning ₹0.3 per dollar of capital employed. In regards to capital employed, Gandhi Special Tubes appears to been achieving more with less, since the business is using 21% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On Gandhi Special Tubes' ROCE

In the end, Gandhi Special Tubes has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 46% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Gandhi Special Tubes can keep these trends up, it could have a bright future ahead.

If you want to continue researching Gandhi Special Tubes, you might be interested to know about the 2 warning signs that our analysis has discovered.

Gandhi Special Tubes 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.