Returns on Capital Paint A Bright Future For Geekay Wires (NSE:GEEKAYWIRE)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Geekay Wires (NSE:GEEKAYWIRE) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Geekay Wires is:

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

0.30 = ₹308m ÷ (₹3.5b - ₹2.5b) (Based on the trailing twelve months to December 2022).

Thus, Geekay Wires has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 14%.

Check out our latest analysis for Geekay Wires

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

SWOT Analysis for Geekay Wires

What Can We Tell From Geekay Wires' ROCE Trend?

Investors would be pleased with what's happening at Geekay Wires. Over the last five years, returns on capital employed have risen substantially to 30%. Basically the business is earning more per dollar of capital invested and in addition to that, 117% more capital is being employed now too. So we're very much inspired by what we're seeing at Geekay Wires thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 71% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

Our Take On Geekay Wires' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Geekay Wires has. And a remarkable 483% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Geekay Wires we've found 4 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.