Returns Are Gaining Momentum At Shree Rama Multi-Tech (NSE:SHREERAMA)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 on that note, Shree Rama Multi-Tech (NSE:SHREERAMA) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Shree Rama Multi-Tech, this is the formula:

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

0.11 = ₹145m ÷ (₹1.6b - ₹263m) (Based on the trailing twelve months to September 2024).

Thus, Shree Rama Multi-Tech has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for Shree Rama Multi-Tech

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Shree Rama Multi-Tech.

How Are Returns Trending?

Investors would be pleased with what's happening at Shree Rama Multi-Tech. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 29%. So we're very much inspired by what we're seeing at Shree Rama Multi-Tech thanks to its ability to profitably reinvest capital.

The Bottom Line On Shree Rama Multi-Tech's ROCE

All in all, it's terrific to see that Shree Rama Multi-Tech is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 721% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Shree Rama Multi-Tech (at least 2 which make us uncomfortable) , and understanding these would certainly be useful.

While Shree Rama Multi-Tech isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.