The Return Trends At Nahar Poly Films (NSE:NAHARPOLY) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 Nahar Poly Films' (NSE:NAHARPOLY) 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. 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)

0.11 = ₹1.1b ÷ (₹11b - ₹680m) (Based on the trailing twelve months to September 2022).

Therefore, Nahar Poly Films has an ROCE of 11%. In isolation, that's a pretty standard return but against the Chemicals industry average of 17%, it's not as good.

See our latest analysis for Nahar Poly Films

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

The Trend Of ROCE

The trends we've noticed at Nahar Poly Films are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 127%. So we're very much inspired by what we're seeing at Nahar Poly Films thanks to its ability to profitably reinvest capital.

The Bottom Line On Nahar Poly Films' ROCE

In summary, it's great to see that Nahar Poly Films can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

Like most companies, Nahar Poly Films does come with some risks, and we've found 3 warning signs that you should be aware of.

While Nahar Poly Films 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.