Garware Hi-Tech Films (NSE:GRWRHITECH) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Garware Hi-Tech Films' (NSE:GRWRHITECH) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Garware Hi-Tech Films:

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

0.14 = ₹3.0b ÷ (₹23b - ₹2.2b) (Based on the trailing twelve months to June 2024).

Thus, Garware Hi-Tech Films has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.

Check out our latest analysis for Garware Hi-Tech Films

Above you can see how the current ROCE for Garware Hi-Tech Films 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 analyst report for Garware Hi-Tech Films .

How Are Returns Trending?

We like the trends that we're seeing from Garware Hi-Tech Films. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at Garware Hi-Tech Films thanks to its ability to profitably reinvest capital.

The Key Takeaway

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 Garware Hi-Tech Films has. And with the stock having performed exceptionally well over the last year, 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.

Like most companies, Garware Hi-Tech Films does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.