We Like These Underlying Return On Capital Trends At Nahar Poly Films (NSE:NAHARPOLY)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Nahar Poly Films' (NSE:NAHARPOLY) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Nahar Poly Films, this is the formula:

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

0.11 = ₹637m ÷ (₹6.5b - ₹850m) (Based on the trailing twelve months to March 2021).

Thus, Nahar Poly Films has an ROCE of 11%. In isolation, that's a pretty standard return but against the Chemicals industry average of 16%, it's not as good.

See 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.

The Trend Of ROCE

Investors would be pleased with what's happening at Nahar Poly Films. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 125%. 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

To sum it up, Nahar Poly Films has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 396% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

One final note, you should learn about the 4 warning signs we've spotted with Nahar Poly Films (including 1 which is a bit unpleasant) .

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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