Vishnusurya Projects and Infra (NSE:VISHNUINFR) Knows How To Allocate Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Vishnusurya Projects and Infra (NSE:VISHNUINFR) we really 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. To calculate this metric for Vishnusurya Projects and Infra, this is the formula:

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

0.24 = ₹397m ÷ (₹2.4b - ₹728m) (Based on the trailing twelve months to September 2024).

So, Vishnusurya Projects and Infra has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 7.0% earned by companies in a similar industry.

Check out our latest analysis for Vishnusurya Projects and Infra

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

What Does the ROCE Trend For Vishnusurya Projects and Infra Tell Us?

Vishnusurya Projects and Infra is displaying some positive trends. Over the last three years, returns on capital employed have risen substantially to 24%. The amount of capital employed has increased too, by 183%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 30%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Vishnusurya Projects and Infra's ROCE

To sum it up, Vishnusurya Projects and Infra has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 43% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Vishnusurya Projects and Infra does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.