We Think Ramkrishna Forgings (NSE:RKFORGE) Might Have The DNA Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Ramkrishna Forgings (NSE:RKFORGE) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Ramkrishna Forgings is:

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

0.23 = ₹5.2b ÷ (₹37b - ₹15b) (Based on the trailing twelve months to June 2023).

Therefore, Ramkrishna Forgings has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 14%.

See our latest analysis for Ramkrishna Forgings

In the above chart we have measured Ramkrishna Forgings' 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 Ramkrishna Forgings here for free.

What Does the ROCE Trend For Ramkrishna Forgings Tell Us?

Investors would be pleased with what's happening at Ramkrishna Forgings. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 86%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

In summary, it's great to see that Ramkrishna Forgings 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. And a remarkable 482% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Ramkrishna Forgings, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.