NCL Industries' (NSE:NCLIND) Returns Have Hit A Wall

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of NCL Industries (NSE:NCLIND) looks decent, right now, so lets see what the trend of returns can tell us.

What is 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 NCL Industries:

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

0.17 = ₹1.9b ÷ (₹14b - ₹3.4b) (Based on the trailing twelve months to December 2021).

Therefore, NCL Industries has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 13% it's much better.

Check out our latest analysis for NCL Industries

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

So How Is NCL Industries' ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 127% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that NCL Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, NCL Industries has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 29% return to shareholders who held over that period. So to determine if NCL Industries is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing to note, we've identified 3 warning signs with NCL Industries and understanding these should be part of your investment process.

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.