Investors Shouldn't Overlook The Favourable Returns On Capital At Goodluck India (NSE:GOODLUCK)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Goodluck India's (NSE:GOODLUCK) trend of ROCE, we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Goodluck India:

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

0.21 = ₹2.7b ÷ (₹20b - ₹7.4b) (Based on the trailing twelve months to June 2024).

Therefore, Goodluck India has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 16%.

Check out our latest analysis for Goodluck India

Historical performance is a great place to start when researching a stock so above you can see the gauge for Goodluck India's ROCE against it's prior returns. If you're interested in investigating Goodluck India's past further, check out this free graph covering Goodluck India's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Goodluck India's returns on capital. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 179% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Goodluck India has done well to reduce current liabilities to 36% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On Goodluck India's ROCE

In short, we'd argue Goodluck India has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 1,860% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Goodluck India, we've discovered 2 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.