Returns On Capital Are A Standout For Gujarat State Petronet (NSE:GSPL)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, the ROCE of Gujarat State Petronet (NSE:GSPL) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What is it?

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 Gujarat State Petronet is:

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

0.23 = ₹29b ÷ (₹153b - ₹28b) (Based on the trailing twelve months to March 2022).

Therefore, Gujarat State Petronet has an ROCE of 23%. In absolute terms that's a very respectable return and compared to the Gas Utilities industry average of 22% it's pretty much on par.

View our latest analysis for Gujarat State Petronet

Above you can see how the current ROCE for Gujarat State Petronet compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Gujarat State Petronet.

How Are Returns Trending?

Gujarat State Petronet is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 23%. The amount of capital employed has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Gujarat State Petronet's ROCE

To sum it up, Gujarat State Petronet has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 30% 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. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we've found 1 warning sign for Gujarat State Petronet that we think you should be aware of.

Gujarat State Petronet is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.