Can Welspun Investments and Commercials (NSE:WELINV) Continue To Grow Its Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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, we've noticed some promising trends at Welspun Investments and Commercials (NSE:WELINV) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Welspun Investments and Commercials:

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

0.072 = ₹75m ÷ (₹1.1b - ₹1.4m) (Based on the trailing twelve months to September 2020).

So, Welspun Investments and Commercials has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Retail Distributors industry average of 3.1%.

See our latest analysis for Welspun Investments and Commercials

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

So How Is Welspun Investments and Commercials' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 569% more capital is being employed now too. So we're very much inspired by what we're seeing at Welspun Investments and Commercials thanks to its ability to profitably reinvest capital.

What We Can Learn From Welspun Investments and Commercials' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Welspun Investments and Commercials has. And a remarkable 631% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Welspun Investments and Commercials can keep these trends up, it could have a bright future ahead.

Like most companies, Welspun Investments and Commercials does come with some risks, and we've found 3 warning signs that you should be aware of.

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. 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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