What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Sarda Energy & Minerals (NSE:SARDAEN) looks great, so lets see what the trend can tell us.
Return On Capital Employed (ROCE): What is it?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Sarda Energy & Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.27 = ₹12b ÷ (₹53b – ₹8.3b) (Based on the trailing twelve months to March 2022).
Therefore, Sarda Energy & Minerals has an ROCE of 27%. In absolute terms that’s a great return and it’s even better than the Metals and Mining industry average of 17%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Sarda Energy & Minerals’ ROCE against it’s prior returns. If you’re interested in investigating Sarda Energy & Minerals’ past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Sarda Energy & Minerals’ ROCE Trend?
Investors would be pleased with what’s happening at Sarda Energy & Minerals. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 27%. Basically the business is earning more per dollar of capital invested and in addition to that, 83% more capital is being employed now too. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
What We Can Learn From Sarda Energy & Minerals’ ROCE
To sum it up, Sarda Energy & Minerals has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 250% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it’s worth looking further into this stock because if Sarda Energy & Minerals can keep these trends up, it could have a bright future ahead.
If you want to continue researching Sarda Energy & Minerals, you might be interested to know about the 2 warning signs that our analysis has discovered.
Sarda Energy & Minerals 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.
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