Welspun Investments and Commercials (NSE:WELINV) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Welspun Investments and Commercials (NSE:WELINV) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on Welspun Investments and Commercials is:

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

0.072 = ₹76m ÷ (₹1.1b - ₹1.4m) (Based on the trailing twelve months to December 2020).

So, Welspun Investments and Commercials has an ROCE of 7.2%. On its own that's a low return, but compared to the average of 3.1% generated by the Retail Distributors industry, it's much better.

View our latest analysis for Welspun Investments and Commercials

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Welspun Investments and Commercials, check out these free graphs here.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.2%. The amount of capital employed has increased too, by 569%. 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.

The Bottom Line On Welspun Investments and Commercials' ROCE

All in all, it's terrific to see that Welspun Investments and Commercials is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Welspun Investments and Commercials, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Welspun Investments and Commercials may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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