Steel Exchange India (NSE:STEELXIND) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, we've noticed some promising trends at Steel Exchange India (NSE:STEELXIND) so let's look a bit deeper.

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. To calculate this metric for Steel Exchange India, this is the formula:

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

0.10 = ₹858m ÷ (₹11b - ₹2.8b) (Based on the trailing twelve months to June 2022).

Therefore, Steel Exchange India has an ROCE of 10%. In isolation, that's a pretty standard return but against the Metals and Mining industry average of 17%, it's not as good.

See our latest analysis for Steel Exchange India

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, revenue and cash flow of Steel Exchange India, check out these free graphs here.

What Can We Tell From Steel Exchange India's ROCE Trend?

We like the trends that we're seeing from Steel Exchange India. The data shows that returns on capital have increased substantially over the last five years to 10%. The amount of capital employed has increased too, by 45%. So we're very much inspired by what we're seeing at Steel Exchange India thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 25%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Steel Exchange India's ROCE

All in all, it's terrific to see that Steel Exchange India is reaping the rewards from prior investments and is growing its capital base. And with a respectable 76% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Steel Exchange India, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.