Return Trends At Vaswani Industries (NSE:VASWANI) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Vaswani Industries (NSE:VASWANI) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Vaswani Industries is:

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

0.12 = ₹156m ÷ (₹2.2b - ₹871m) (Based on the trailing twelve months to June 2022).

Thus, Vaswani Industries has an ROCE of 12%. 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 Vaswani Industries

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

So How Is Vaswani Industries' ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 40% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Vaswani Industries has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Vaswani Industries has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Vaswani Industries' ROCE

In the end, Vaswani Industries has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 33% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

If you want to continue researching Vaswani Industries, you might be interested to know about the 3 warning signs that our analysis has discovered.

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.