Investors Shouldn't Overlook Ratnamani Metals & Tubes' (NSE:RATNAMANI) Impressive Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Ratnamani Metals & Tubes (NSE:RATNAMANI) we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ratnamani Metals & Tubes is:

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

0.23 = ₹5.6b ÷ (₹31b - ₹5.7b) (Based on the trailing twelve months to December 2022).

Therefore, Ratnamani Metals & Tubes has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for Ratnamani Metals & Tubes

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ratnamani Metals & Tubes' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ratnamani Metals & Tubes, check out these free graphs here.

So How Is Ratnamani Metals & Tubes' ROCE Trending?

Ratnamani Metals & Tubes is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 93% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Ratnamani Metals & Tubes' ROCE

All in all, it's terrific to see that Ratnamani Metals & Tubes is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Ratnamani Metals & Tubes and understanding this should be part of your investment process.

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.