Why The 46% Return On Capital At Hindustan Zinc (NSE:HINDZINC) Should Have Your Attention

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Hindustan Zinc (NSE:HINDZINC) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on Hindustan Zinc is:

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

0.46 = ₹158b ÷ (₹425b - ₹83b) (Based on the trailing twelve months to September 2022).

So, Hindustan Zinc has an ROCE of 46%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 15%.

See our latest analysis for Hindustan Zinc

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hindustan Zinc's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Hindustan Zinc's ROCE Trend?

Hindustan Zinc's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 62% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Hindustan Zinc's ROCE

To bring it all together, Hindustan Zinc has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 61% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Hindustan Zinc, you might be interested to know about the 1 warning sign that our analysis has discovered.

Hindustan Zinc is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.