Investors Will Want Garware Hi-Tech Films' (NSE:GRWRHITECH) Growth In ROCE To Persist

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Garware Hi-Tech Films (NSE:GRWRHITECH) and its trend of ROCE, we really liked what we saw.

Understanding 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 Garware Hi-Tech Films is:

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

0.12 = ₹2.4b ÷ (₹23b - ₹2.2b) (Based on the trailing twelve months to March 2024).

Therefore, Garware Hi-Tech Films has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Chemicals industry.

View our latest analysis for Garware Hi-Tech Films

In the above chart we have measured Garware Hi-Tech Films' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Garware Hi-Tech Films .

The Trend Of ROCE

Investors would be pleased with what's happening at Garware Hi-Tech Films. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 41%. 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 Garware Hi-Tech Films' ROCE

All in all, it's terrific to see that Garware Hi-Tech Films is reaping the rewards from prior investments and is growing its capital base. And a remarkable 158% total return over the last year tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Garware Hi-Tech Films and understanding them should be part of your investment process.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com