Stock Analysis

Under The Bonnet, InterGlobe Aviation's (NSE:INDIGO) Returns Look Impressive

NSEI:INDIGO
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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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at InterGlobe Aviation's (NSE:INDIGO) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on InterGlobe Aviation is:

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

0.22 = ₹94b ÷ (₹732b - ₹304b) (Based on the trailing twelve months to December 2023).

Therefore, InterGlobe Aviation has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Airlines industry average of 9.2%.

View our latest analysis for InterGlobe Aviation

roce
NSEI:INDIGO Return on Capital Employed March 7th 2024

In the above chart we have measured InterGlobe Aviation's prior ROCE against its prior performance, but the future is arguably more important. 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?

InterGlobe Aviation is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 167%. 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 42% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On InterGlobe Aviation's ROCE

To sum it up, InterGlobe Aviation has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 137% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

On a separate note, we've found 3 warning signs for InterGlobe Aviation you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether InterGlobe Aviation is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.