Under The Bonnet, GTPL Hathway's (NSE:GTPL) Returns Look Impressive

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at the ROCE trend of GTPL Hathway (NSE:GTPL) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for GTPL Hathway:

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

0.20 = ₹2.7b ÷ (₹26b - ₹13b) (Based on the trailing twelve months to December 2022).

Therefore, GTPL Hathway has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Media industry average of 9.6%.

View our latest analysis for GTPL Hathway

Historical performance is a great place to start when researching a stock so above you can see the gauge for GTPL Hathway's ROCE against it's prior returns. If you're interested in investigating GTPL Hathway's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is GTPL Hathway's ROCE Trending?

We like the trends that we're seeing from GTPL Hathway. Over the last five years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 40%. So we're very much inspired by what we're seeing at GTPL Hathway thanks to its ability to profitably reinvest capital.

Another thing to note, GTPL Hathway has a high ratio of current liabilities to total assets of 50%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On GTPL Hathway's ROCE

All in all, it's terrific to see that GTPL Hathway is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 25% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, GTPL Hathway does come with some risks, and we've found 1 warning sign that you should be aware of.

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. 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.