Stock Analysis

Why We Like The Returns At Solar Industries India (NSE:SOLARINDS)

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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Solar Industries India (NSE:SOLARINDS) we really liked what we saw.

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

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 Solar Industries India is:

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

0.36 = ₹11b ÷ (₹45b - ₹15b) (Based on the trailing twelve months to December 2022).

Thus, Solar Industries India has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

Check out our latest analysis for Solar Industries India

NSEI:SOLARINDS Return on Capital Employed March 18th 2023

In the above chart we have measured Solar Industries India's 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 Solar Industries India.

How Are Returns Trending?

We like the trends that we're seeing from Solar Industries India. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 36%. Basically the business is earning more per dollar of capital invested and in addition to that, 139% more capital is being employed now too. So we're very much inspired by what we're seeing at Solar Industries India thanks to its ability to profitably reinvest capital.

What We Can Learn From Solar Industries India's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Solar Industries India has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

One more thing to note, we've identified 1 warning sign with Solar Industries India and understanding this should be part of your investment process.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Solar Industries India is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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