There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Unipro (MCX:UPRO) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Unipro is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = ₽21b ÷ (₽137b - ₽6.7b) (Based on the trailing twelve months to September 2020).
Therefore, Unipro has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.
Above you can see how the current ROCE for Unipro 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 Unipro.
So How Is Unipro's ROCE Trending?
Unipro has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28% in that same time. 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.
Our Take On Unipro's ROCE
As discussed above, Unipro appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 40% return over the last five years. In light of that, we think it's worth looking further into this stock because if Unipro can keep these trends up, it could have a bright future ahead.
If you want to continue researching Unipro, you might be interested to know about the 1 warning sign that our analysis has discovered.
While Unipro 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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