The Return Trends At Incredible Industries (NSE:INCREDIBLE) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 when we looked at Incredible Industries (NSE:INCREDIBLE) and its trend of ROCE, we really liked what we saw.

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Understanding 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 Incredible Industries is:

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

0.10 = ₹147m ÷ (₹2.0b - ₹531m) (Based on the trailing twelve months to December 2024).

Therefore, Incredible Industries has an ROCE of 10%. In isolation, that's a pretty standard return but against the Metals and Mining industry average of 14%, it's not as good.

Check out our latest analysis for Incredible Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Incredible Industries' ROCE against it's prior returns. If you'd like to look at how Incredible Industries has performed in the past in other metrics, you can view this free graph of Incredible Industries' past earnings, revenue and cash flow.

How Are Returns Trending?

Incredible Industries 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 47% 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.

In Conclusion...

To sum it up, Incredible Industries is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 114% 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 Incredible Industries can keep these trends up, it could have a bright future ahead.

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

While Incredible Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.