Many Would Be Envious Of Insimbi Industrial Holdings' (JSE:ISB) Excellent Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. That's why when we briefly looked at Insimbi Industrial Holdings' (JSE:ISB) ROCE trend, we were very happy with 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. Analysts use this formula to calculate it for Insimbi Industrial Holdings:

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

0.23 = R212m ÷ (R1.6b - R673m) (Based on the trailing twelve months to August 2022).

Thus, Insimbi Industrial Holdings has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

Check out our latest analysis for Insimbi Industrial Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Insimbi Industrial Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Insimbi Industrial Holdings. The company has consistently earned 23% for the last five years, and the capital employed within the business has risen 64% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Insimbi Industrial Holdings can keep this up, we'd be very optimistic about its future.

Another thing to note, Insimbi Industrial Holdings has a high ratio of current liabilities to total assets of 42%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Insimbi Industrial Holdings' ROCE

In summary, we're delighted to see that Insimbi Industrial Holdings has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock has only delivered a 1.0% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

On a separate note, we've found 3 warning signs for Insimbi Industrial Holdings you'll probably want to know about.

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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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.