All E Technologies (NSE:ALLETEC) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 on that note, All E Technologies (NSE:ALLETEC) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for All E Technologies:

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

0.18 = ₹237m ÷ (₹1.7b - ₹372m) (Based on the trailing twelve months to September 2024).

Therefore, All E Technologies has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 14% it's much better.

View our latest analysis for All E Technologies

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

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at All E Technologies. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 328% more capital is being employed now too. 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 All E Technologies' 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 All E Technologies has. And a remarkable 101% total return over the last year tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for ALLETEC that compares the share price and estimated value.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.