The Returns At Swastik Pipe (NSE:SWASTIK) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 ran our eye over Swastik Pipe's (NSE:SWASTIK) trend of ROCE, we liked what we saw.

Understanding 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 Swastik Pipe:

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

0.12 = ₹304m ÷ (₹4.1b - ₹1.5b) (Based on the trailing twelve months to September 2023).

So, Swastik Pipe has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 14% generated by the Metals and Mining industry.

Check out our latest analysis for Swastik Pipe

Historical performance is a great place to start when researching a stock so above you can see the gauge for Swastik Pipe's ROCE against it's prior returns. If you'd like to look at how Swastik Pipe has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last four years, and the capital employed within the business has risen 67% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 37% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In the end, Swastik Pipe has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 24% to shareholders over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Swastik Pipe does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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.

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.