Why The 48% Return On Capital At Geekay Wires (NSE:GEEKAYWIRE) Should Have Your Attention

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Geekay Wires (NSE:GEEKAYWIRE) looks great, so lets see what the trend can tell us.

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. Analysts use this formula to calculate it for Geekay Wires:

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

0.48 = ₹598m ÷ (₹2.1b - ₹804m) (Based on the trailing twelve months to December 2023).

So, Geekay Wires has an ROCE of 48%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 15%.

View 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 , check out these free graphs detailing revenue and cash flow performance of Geekay Wires.

How Are Returns Trending?

Geekay Wires is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 48%. The amount of capital employed has increased too, by 123%. So we're very much inspired by what we're seeing at Geekay Wires thanks to its ability to profitably reinvest capital.

One more thing to note, Geekay Wires has decreased current liabilities to 39% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

To sum it up, Geekay Wires has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 4 warning signs facing Geekay Wires that you might find interesting.

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.