Greenpanel Industries (NSE:GREENPANEL) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Greenpanel Industries (NSE:GREENPANEL) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Greenpanel Industries is:

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

0.10 = ₹1.7b ÷ (₹19b - ₹2.0b) (Based on the trailing twelve months to March 2024).

Thus, Greenpanel Industries has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Forestry industry average of 12%.

See our latest analysis for Greenpanel Industries

In the above chart we have measured Greenpanel Industries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Greenpanel Industries .

What Does the ROCE Trend For Greenpanel Industries Tell Us?

Investors would be pleased with what's happening at Greenpanel Industries. Over the last five years, returns on capital employed have risen substantially to 10%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 43%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Greenpanel Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 45% return over the last three years. In light of that, we think it's worth looking further into this stock because if Greenpanel Industries can keep these trends up, it could have a bright future ahead.

Greenpanel Industries does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While Greenpanel Industries 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. 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.

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