Aksh Optifibre (NSE:AKSHOPTFBR) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Speaking of which, we noticed some great changes in Aksh Optifibre's (NSE:AKSHOPTFBR) returns on capital, so let's have a look.

What Is 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. The formula for this calculation on Aksh Optifibre is:

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

0.15 = ₹149m ÷ (₹3.7b - ₹2.7b) (Based on the trailing twelve months to September 2023).

Therefore, Aksh Optifibre has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 14% generated by the Communications industry.

View our latest analysis for Aksh Optifibre

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aksh Optifibre's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Aksh Optifibre, check out these free graphs here.

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at Aksh Optifibre. The figures show that over the last five years, returns on capital have grown by 82%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Aksh Optifibre appears to been achieving more with less, since the business is using 84% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 74% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

In Conclusion...

In summary, it's great to see that Aksh Optifibre has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 36% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing Aksh Optifibre that you might find interesting.

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. 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.