Savita Oil Technologies (NSE:SOTL) Is Investing Its Capital With Increasing Efficiency

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Savita Oil Technologies (NSE:SOTL) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Savita Oil Technologies:

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

0.27 = ₹3.4b ÷ (₹20b - ₹7.2b) (Based on the trailing twelve months to March 2022).

So, Savita Oil Technologies has an ROCE of 27%. 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 Savita Oil Technologies

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

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Savita Oil Technologies are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 27%. 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 85%. So we're very much inspired by what we're seeing at Savita Oil Technologies thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Savita Oil Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.3% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Savita Oil Technologies, we've discovered 1 warning sign that you should be aware of.

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.

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.