We Think Rajratan Global Wire (NSE:RAJRATAN) Might Have The DNA Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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 Rajratan Global Wire (NSE:RAJRATAN) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

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 Rajratan Global Wire, this is the formula:

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

0.41 = ₹1.7b ÷ (₹6.2b - ₹2.1b) (Based on the trailing twelve months to March 2022).

So, Rajratan Global Wire has an ROCE of 41%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 17%.

Check out our latest analysis for Rajratan Global Wire

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Rajratan Global Wire's ROCE Trend?

We like the trends that we're seeing from Rajratan Global Wire. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 41%. The amount of capital employed has increased too, by 257%. So we're very much inspired by what we're seeing at Rajratan Global Wire thanks to its ability to profitably reinvest capital.

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. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

In summary, it's great to see that Rajratan Global Wire can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 156% to shareholders over the last year, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Rajratan Global Wire can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Rajratan Global Wire we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

Rajratan Global Wire is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.