Investors Shouldn't Overlook The Favourable Returns On Capital At Pokarna (NSE:POKARNA)

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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Pokarna's (NSE:POKARNA) trend of ROCE, we really liked what we saw.

We've discovered 2 warning signs about Pokarna. View them for free.

What Is 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. Analysts use this formula to calculate it for Pokarna:

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

0.21 = ₹2.2b ÷ (₹13b - ₹2.6b) (Based on the trailing twelve months to December 2024).

So, Pokarna has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Basic Materials industry average of 6.8%.

View our latest analysis for Pokarna

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pokarna's ROCE against it's prior returns. If you're interested in investigating Pokarna's past further, check out this free graph covering Pokarna's past earnings, revenue and cash flow.

What Can We Tell From Pokarna's ROCE Trend?

Pokarna deserves to be commended in regards to it's returns. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 62% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line On Pokarna's ROCE

In short, we'd argue Pokarna has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 886% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One final note, you should learn about the 2 warning signs we've spotted with Pokarna (including 1 which is potentially serious) .

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.