Investors Met With Slowing Returns on Capital At Nuvoco Vistas (NSE:NUVOCO)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Nuvoco Vistas (NSE:NUVOCO) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Nuvoco Vistas, this is the formula:

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

0.043 = ₹5.8b ÷ (₹191b - ₹56b) (Based on the trailing twelve months to December 2023).

Thus, Nuvoco Vistas has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 10%.

Check out our latest analysis for Nuvoco Vistas

Above you can see how the current ROCE for Nuvoco Vistas compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Nuvoco Vistas .

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Nuvoco Vistas. Over the past five years, ROCE has remained relatively flat at around 4.3% and the business has deployed 44% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

As we've seen above, Nuvoco Vistas' returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly then, the total return to shareholders over the last year has been flat. Therefore based on the analysis done in this article, we don't think Nuvoco Vistas has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with Nuvoco Vistas (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

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.