Shareholders Are Optimistic That Solar Industries India (NSE:SOLARINDS) Will Multiply In Value

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Solar Industries India (NSE:SOLARINDS), we liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Solar Industries India is:

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

0.31 = ₹9.4b ÷ (₹45b - ₹15b) (Based on the trailing twelve months to September 2022).

Thus, Solar Industries India has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 17%.

See our latest analysis for Solar Industries India

Above you can see how the current ROCE for Solar Industries India compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Solar Industries India deserves to be commended in regards to it's returns. The company has employed 139% more capital in the last five years, and the returns on that capital have remained stable at 31%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Solar Industries India can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that Solar Industries India has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And the stock has done incredibly well with a 264% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing, we've spotted 1 warning sign facing Solar Industries India that you might find interesting.

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.

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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.