Intellect Design Arena (NSE:INTELLECT) Might Have The Makings Of A Multi-Bagger

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. With that in mind, we've noticed some promising trends at Intellect Design Arena (NSE:INTELLECT) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Intellect Design Arena is:

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

0.16 = ₹3.7b ÷ (₹31b - ₹7.6b) (Based on the trailing twelve months to September 2023).

Therefore, Intellect Design Arena has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Software industry average of 13% it's much better.

Check out our latest analysis for Intellect Design Arena

Above you can see how the current ROCE for Intellect Design Arena compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Intellect Design Arena here for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Intellect Design Arena. Over the last five years, returns on capital employed have risen substantially to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 117%. So we're very much inspired by what we're seeing at Intellect Design Arena thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Intellect Design Arena 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Intellect Design Arena that we think you should be aware of.

While Intellect Design Arena 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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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.