The Return Trends At InterGlobe Aviation (NSE:INDIGO) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, InterGlobe Aviation (NSE:INDIGO) looks quite promising in regards to its trends of return on capital.

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Understanding 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 InterGlobe Aviation is:

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

0.13 = ₹116b ÷ (₹1.3t - ₹398b) (Based on the trailing twelve months to September 2025).

So, InterGlobe Aviation has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Airlines industry.

See 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'd like, you can check out the forecasts from the analysts covering InterGlobe Aviation for free.

What Can We Tell From InterGlobe Aviation's ROCE Trend?

We're delighted to see that InterGlobe Aviation is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 13% which is a sight for sore eyes. Not only that, but the company is utilizing 275% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

In summary, it's great to see that InterGlobe Aviation has managed to break into profitability and is continuing to reinvest in its business. 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.

InterGlobe Aviation does have some risks though, and we've spotted 2 warning signs for InterGlobe Aviation that you might be interested in.

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.