We Like Adani Total Gas' (NSE:ATGL) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Adani Total Gas' (NSE:ATGL) look very promising so lets take 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 Adani Total Gas is:

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

0.29 = ₹6.1b ÷ (₹27b - ₹6.3b) (Based on the trailing twelve months to December 2020).

Therefore, Adani Total Gas has an ROCE of 29%. In absolute terms that's a very respectable return and compared to the Gas Utilities industry average of 24% it's pretty much on par.

See our latest analysis for Adani Total Gas

Historical performance is a great place to start when researching a stock so above you can see the gauge for Adani Total Gas' ROCE against it's prior returns. If you'd like to look at how Adani Total Gas has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Adani Total Gas. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 106% more capital is being employed now too. So we're very much inspired by what we're seeing at Adani Total Gas thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Adani Total Gas has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Adani Total Gas, we've discovered 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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