The Trend Of High Returns At Vaswani Industries (NSE:VASWANI) Has Us Very Interested

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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, the ROCE of Vaswani Industries (NSE:VASWANI) looks great, so lets see what the trend 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)

0.21 = ₹240m ÷ (₹1.9b - ₹716m) (Based on the trailing twelve months to December 2020).

So, Vaswani Industries has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 9.6%.

Check out 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're interested in investigating Vaswani Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Vaswani Industries' ROCE Trend?

Vaswani Industries' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 111% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Vaswani Industries' ROCE

To sum it up, Vaswani Industries is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 54% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

Vaswani Industries does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those are potentially serious...

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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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