Returns Are Gaining Momentum At InterGlobe Aviation (NSE:INDIGO)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at InterGlobe Aviation (NSE:INDIGO) so let's look a bit deeper.

What Is 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 InterGlobe Aviation is:

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

0.16 = ₹100b ÷ (₹972b - ₹353b) (Based on the trailing twelve months to December 2024).

Therefore, InterGlobe Aviation has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Airlines industry average of 8.5% it's much better.

Check out our latest analysis for InterGlobe Aviation

Above you can see how the current ROCE for InterGlobe Aviation compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for InterGlobe Aviation .

What Does the ROCE Trend For InterGlobe Aviation Tell Us?

Investors would be pleased with what's happening at InterGlobe Aviation. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 153% 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 InterGlobe Aviation's ROCE

All in all, it's terrific to see that InterGlobe Aviation 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. In light of that, we think it's worth looking further into this stock because if InterGlobe Aviation can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with InterGlobe Aviation and understanding it should be part of your investment process.

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.