There's Been No Shortage Of Growth Recently For Nuvoco Vistas' (NSE:NUVOCO) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Nuvoco Vistas (NSE:NUVOCO) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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. 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)

0.052 = ₹7.1b ÷ (₹187b - ₹52b) (Based on the trailing twelve months to March 2024).

Therefore, Nuvoco Vistas has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 9.6%.

View 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 Does the ROCE Trend For Nuvoco Vistas Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.2%. 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 37%. So we're very much inspired by what we're seeing at Nuvoco Vistas thanks to its ability to profitably reinvest capital.

Our Take On Nuvoco Vistas' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Nuvoco Vistas has. Since the total return from the stock has been almost flat over the last year, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Nuvoco Vistas does have some risks though, and we've spotted 1 warning sign for Nuvoco Vistas that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.