Gateway Distriparks (NSE:GATEWAY) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Gateway Distriparks (NSE:GATEWAY) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Gateway Distriparks, this is the formula:

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

0.13 = ₹2.9b ÷ (₹25b - ₹2.9b) (Based on the trailing twelve months to December 2023).

Thus, Gateway Distriparks has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Logistics industry average of 14%.

See our latest analysis for Gateway Distriparks

Above you can see how the current ROCE for Gateway Distriparks compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Gateway Distriparks .

What Does the ROCE Trend For Gateway Distriparks Tell Us?

The trends we've noticed at Gateway Distriparks are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 13%. 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 39%. So we're very much inspired by what we're seeing at Gateway Distriparks thanks to its ability to profitably reinvest capital.

What We Can Learn From Gateway Distriparks' ROCE

All in all, it's terrific to see that Gateway Distriparks is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 27% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Gateway Distriparks and understanding them should be part of your investment process.

While Gateway Distriparks isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.