The Trends At Goodluck India (NSE:GOODLUCK) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. That's why when we briefly looked at Goodluck India's (NSE:GOODLUCK) ROCE trend, we were pretty happy with 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 Goodluck India is:

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

0.20 = ₹903m ÷ (₹9.8b - ₹5.2b) (Based on the trailing twelve months to September 2020).

Thus, Goodluck India has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Metals and Mining industry.

See 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 want to delve into the historical earnings, revenue and cash flow of Goodluck India, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has employed 52% more capital in the last five years, and the returns on that capital have remained stable at 20%. 20% is a pretty standard return, and it provides some comfort knowing that Goodluck India 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 separate but related note, it's important to know that Goodluck India has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

To sum it up, Goodluck India has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 52%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing: We've identified 2 warning signs with Goodluck India (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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