Here's What To Make Of Geekay Wires' (NSE:GEEKAYWIRE) Decelerating Rates Of Return

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 Geekay Wires' (NSE:GEEKAYWIRE) ROCE trend, we were pretty happy with what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Geekay Wires:

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

0.17 = ₹147m ÷ (₹1.4b - ₹534m) (Based on the trailing twelve months to March 2021).

Therefore, Geekay Wires has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 12% generated by the Metals and Mining industry.

See our latest analysis for Geekay Wires

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Geekay Wires, check out these free graphs here.

What Does the ROCE Trend For Geekay Wires Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 410% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Geekay Wires has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Geekay Wires has done well to reduce current liabilities to 38% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

In the end, Geekay Wires has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 222% 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.

Geekay Wires does have some risks, we noticed 5 warning signs (and 2 which don't sit too well with us) we think you should know about.

While Geekay Wires 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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