Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Steelcast (NSE:STEELCAS) looks attractive right now, so lets see what the trend of returns can tell us.
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. Analysts use this formula to calculate it for Steelcast:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = ₹885m ÷ (₹3.2b - ₹444m) (Based on the trailing twelve months to June 2024).
So, Steelcast has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.
View our latest analysis for Steelcast
Historical performance is a great place to start when researching a stock so above you can see the gauge for Steelcast's ROCE against it's prior returns. If you're interested in investigating Steelcast's past further, check out this free graph covering Steelcast's past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of Steelcast's history of ROCE, it's quite impressive. The company has employed 83% more capital in the last five years, and the returns on that capital have remained stable at 32%. Now considering ROCE is an attractive 32%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Steelcast can keep this up, we'd be very optimistic about its future.
On a side note, Steelcast has done well to reduce current liabilities to 14% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.
In Conclusion...
Steelcast has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. In light of this, the stock has only gained 5.3% over the last year for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
One more thing to note, we've identified 1 warning sign with Steelcast and understanding this should be part of your investment process.
Steelcast is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
About NSEI:STEELCAS
Flawless balance sheet with proven track record.
