HeidelbergCement India (NSE:HEIDELBERG) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in HeidelbergCement India's (NSE:HEIDELBERG) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for HeidelbergCement India:

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

0.14 = ₹2.9b ÷ (₹28b - ₹8.4b) (Based on the trailing twelve months to June 2022).

Therefore, HeidelbergCement India has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 10% it's much better.

See our latest analysis for HeidelbergCement India

Historical performance is a great place to start when researching a stock so above you can see the gauge for HeidelbergCement India's ROCE against it's prior returns. If you're interested in investigating HeidelbergCement India's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From HeidelbergCement India's ROCE Trend?

The trends we've noticed at HeidelbergCement India are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 20%. 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.

In Conclusion...

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 HeidelbergCement India has. Since the stock has returned a staggering 110% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with HeidelbergCement India and understanding these 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.