Universus Photo Imagings (NSE:UNIVPHOTO) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Universus Photo Imagings (NSE:UNIVPHOTO) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Universus Photo Imagings, this is the formula:

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

0.016 = ₹179m ÷ (₹11b - ₹23m) (Based on the trailing twelve months to June 2021).

Thus, Universus Photo Imagings has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 17%.

See our latest analysis for Universus Photo Imagings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Universus Photo Imagings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Universus Photo Imagings, check out these free graphs here.

What Does the ROCE Trend For Universus Photo Imagings Tell Us?

We're delighted to see that Universus Photo Imagings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 1.6% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Universus Photo Imagings is utilizing 13,022,158% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 0.2%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

In summary, it's great to see that Universus Photo Imagings has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 68% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Universus Photo Imagings, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
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