Hindustan Copper's (NSE:HINDCOPPER) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 on that note, Hindustan Copper (NSE:HINDCOPPER) looks quite promising in regards to its trends of return on capital.

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 Hindustan Copper is:

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

0.16 = ₹4.3b ÷ (₹33b - ₹5.6b) (Based on the trailing twelve months to March 2024).

So, Hindustan Copper has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Metals and Mining industry.

See our latest analysis for Hindustan Copper

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

The Trend Of ROCE

Hindustan Copper is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 24% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a related note, the company's ratio of current liabilities to total assets has decreased to 17%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Hindustan Copper's ROCE

As discussed above, Hindustan Copper appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 839% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Hindustan Copper can keep these trends up, it could have a bright future ahead.

Hindustan Copper does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

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.

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