Stock Analysis

INEOS Styrolution India (NSE:INEOSSTYRO) Could Become A Multi-Bagger

NSEI:STYRENIX
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in INEOS Styrolution India's (NSE:INEOSSTYRO) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 INEOS Styrolution India is:

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

0.46 = ₹4.4b ÷ (₹12b - ₹2.9b) (Based on the trailing twelve months to March 2022).

Therefore, INEOS Styrolution India has an ROCE of 46%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 16%.

See our latest analysis for INEOS Styrolution India

roce
NSEI:INEOSSTYRO Return on Capital Employed July 12th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for INEOS Styrolution India's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of INEOS Styrolution India, check out these free graphs here.

What Can We Tell From INEOS Styrolution India's ROCE Trend?

The trends we've noticed at INEOS Styrolution India are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 46%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% more capital is being employed now too. 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.

One more thing to note, INEOS Styrolution India has decreased current liabilities to 24% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

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 INEOS Styrolution India has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 12% to shareholders. So with that in mind, we think the stock deserves further research.

On a final note, we've found 2 warning signs for INEOS Styrolution India that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.