Under The Bonnet, Rajratan Global Wire's (NSE:RAJRATAN) Returns Look Impressive

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Rajratan Global Wire's (NSE:RAJRATAN) returns on capital, so let's have a look.

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. The formula for this calculation on Rajratan Global Wire is:

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

0.45 = ₹1.8b ÷ (₹6.2b - ₹2.1b) (Based on the trailing twelve months to June 2022).

Therefore, Rajratan Global Wire has an ROCE of 45%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 17%.

Check out the opportunities and risks within the IN Metals and Mining industry.

In the above chart we have measured Rajratan Global Wire's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Rajratan Global Wire here for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Rajratan Global Wire. Over the last five years, returns on capital employed have risen substantially to 45%. The amount of capital employed has increased too, by 257%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 34%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

All in all, it's terrific to see that Rajratan Global Wire is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Rajratan Global Wire looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RAJRATAN is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.