What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Linde India's (NSE:LINDEINDIA) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Linde India is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = ₹5.5b ÷ (₹51b - ₹10b) (Based on the trailing twelve months to March 2025).
Thus, Linde India has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 12%.
View our latest analysis for Linde India
In the above chart we have measured Linde India's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Linde India for free.
What Can We Tell From Linde India's ROCE Trend?
We like the trends that we're seeing from Linde India. Over the last five years, returns on capital employed have risen substantially to 13%. The amount of capital employed has increased too, by 65%. 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.
What We Can Learn From Linde India's ROCE
All in all, it's terrific to see that Linde India is reaping the rewards from prior investments and is growing its capital base. And a remarkable 932% 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 Linde India can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Linde India, we've discovered 1 warning sign that you should be aware of.
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.