Returns on Capital Paint A Bright Future For Ratnamani Metals & Tubes (NSE:RATNAMANI)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Ratnamani Metals & Tubes' (NSE:RATNAMANI) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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)

0.26 = ₹7.6b ÷ (₹38b - ₹8.6b) (Based on the trailing twelve months to June 2023).

Thus, Ratnamani Metals & Tubes has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See our latest analysis for Ratnamani Metals & Tubes

In the above chart we have measured Ratnamani Metals & Tubes' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ratnamani Metals & Tubes.

How Are Returns Trending?

Investors would be pleased with what's happening at Ratnamani Metals & Tubes. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 116%. So we're very much inspired by what we're seeing at Ratnamani Metals & Tubes thanks to its ability to profitably reinvest capital.

Our Take On Ratnamani Metals & Tubes' ROCE

In summary, it's great to see that Ratnamani Metals & Tubes 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 369% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Ratnamani Metals & Tubes does come with some risks, and we've found 1 warning sign that you should be aware of.

Ratnamani Metals & Tubes 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.

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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.