Investors Will Want GAIL (India)'s (NSE:GAIL) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, GAIL (India) (NSE:GAIL) looks quite promising in regards to its trends of return on capital.

What is 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. Analysts use this formula to calculate it for GAIL (India):

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

0.16 = ₹127b ÷ (₹966b - ₹151b) (Based on the trailing twelve months to March 2022).

Thus, GAIL (India) has an ROCE of 16%. In isolation, that's a pretty standard return but against the Gas Utilities industry average of 22%, it's not as good.

View our latest analysis for GAIL (India)

Above you can see how the current ROCE for GAIL (India) 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 GAIL (India) here for free.

What Does the ROCE Trend For GAIL (India) Tell Us?

We like the trends that we're seeing from GAIL (India). The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. 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 66%. So we're very much inspired by what we're seeing at GAIL (India) thanks to its ability to profitably reinvest capital.

The Bottom Line On GAIL (India)'s ROCE

All in all, it's terrific to see that GAIL (India) is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 22% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 2 warning signs we've spotted with GAIL (India) (including 1 which is significant) .

While GAIL (India) 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.