Nahar Poly Films (NSE:NAHARPOLY) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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, we've noticed some promising trends at Nahar Poly Films (NSE:NAHARPOLY) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Nahar Poly Films:

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

0.10 = ₹1.1b ÷ (₹11b - ₹538m) (Based on the trailing twelve months to March 2022).

Therefore, Nahar Poly Films has an ROCE of 10%. In isolation, that's a pretty standard return but against the Chemicals industry average of 17%, it's not as good.

Check out our latest analysis for Nahar Poly Films

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 Nahar Poly Films' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Nahar Poly Films' ROCE Trend?

Nahar Poly Films is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 163%. So we're very much inspired by what we're seeing at Nahar Poly Films thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Nahar Poly Films is reaping the rewards from prior investments and is growing its capital base. And a remarkable 546% 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 Nahar Poly Films can keep these trends up, it could have a bright future ahead.

Nahar Poly Films does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While Nahar Poly Films may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.