There's Been No Shortage Of Growth Recently For Power Grid Corporation of India's (NSE:POWERGRID) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Power Grid Corporation of India (NSE:POWERGRID) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Power Grid Corporation of India, this is the formula:

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

0.13 = ₹278b ÷ (₹2.5t - ₹274b) (Based on the trailing twelve months to September 2023).

So, Power Grid Corporation of India has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 7.4% it's much better.

Check out our latest analysis for Power Grid Corporation of India

In the above chart we have measured Power Grid Corporation of India'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 Power Grid Corporation of India here for free.

How Are Returns Trending?

Power Grid Corporation of India has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 41% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

To bring it all together, Power Grid Corporation of India has done well to increase the returns it's generating from its capital employed. 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 Power Grid Corporation of India can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Power Grid Corporation of India that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.