There's Been No Shortage Of Growth Recently For Greenpanel Industries' (NSE:GREENPANEL) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Greenpanel Industries, this is the formula:

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

0.078 = ₹871m ÷ (₹14b - ₹2.9b) (Based on the trailing twelve months to December 2020).

Thus, Greenpanel Industries has an ROCE of 7.8%. On its own, that's a low figure but it's around the 9.3% average generated by the Forestry industry.

View our latest analysis for Greenpanel Industries

Above you can see how the current ROCE for Greenpanel Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Greenpanel Industries.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last two years, returns on capital employed have risen substantially to 7.8%. 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 87%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Greenpanel Industries' 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 Greenpanel Industries has. Since the stock has returned a staggering 550% to shareholders over the last year, it looks like investors are recognizing these changes. 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.

If you want to know some of the risks facing Greenpanel Industries we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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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