The Trend Of High Returns At Sat Industries (NSE:SATINDLTD) Has Us Very Interested

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Sat Industries' (NSE:SATINDLTD) look very promising so lets take a look.

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. To calculate this metric for Sat Industries, this is the formula:

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

0.45 = ₹3.3b ÷ (₹8.9b - ₹1.5b) (Based on the trailing twelve months to June 2024).

Thus, Sat Industries has an ROCE of 45%. 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 Sat Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sat Industries' ROCE against it's prior returns. If you're interested in investigating Sat Industries' past further, check out this free graph covering Sat Industries' past earnings, revenue and cash flow.

How Are Returns Trending?

Sat Industries is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 45%. 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 271%. 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.

One more thing to note, Sat Industries has decreased current liabilities to 17% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Sat Industries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Sat Industries' ROCE

To sum it up, Sat Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 18% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Sat Industries can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for SATINDLTD that compares the share price and estimated value.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.