Ratnamani Metals & Tubes (NSE:RATNAMANI) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Ratnamani Metals & Tubes (NSE:RATNAMANI) looks decent, right now, so lets see what the trend of returns can tell us.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.19 = ₹6.6b ÷ (₹43b - ₹8.0b) (Based on the trailing twelve months to September 2024).

Thus, Ratnamani Metals & Tubes has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 14% generated by the Metals and Mining industry.

Check out our latest analysis for Ratnamani Metals & Tubes

Above you can see how the current ROCE for Ratnamani Metals & Tubes 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 Ratnamani Metals & Tubes .

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 95% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Ratnamani Metals & Tubes' ROCE

The main thing to remember is that Ratnamani Metals & Tubes has proven its ability to continually reinvest at respectable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 399% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 2 warning signs with Ratnamani Metals & Tubes (at least 1 which makes us a bit uncomfortable) , and understanding them would certainly be useful.

While Ratnamani Metals & Tubes may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.