Grindwell Norton (NSE:GRINDWELL) Is Aiming To Keep Up Its Impressive Returns

Simply Wall St · 10/15 00:04

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Grindwell Norton (NSE:GRINDWELL) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Grindwell Norton is:

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

0.20 = ₹4.4b ÷ (₹28b - ₹5.7b) (Based on the trailing twelve months to June 2024).

Therefore, Grindwell Norton has an ROCE of 20%. In absolute terms that's a very respectable return and compared to the Machinery industry average of 17% it's pretty much on par.

See our latest analysis for Grindwell Norton

roce
NSEI:GRINDWELL Return on Capital Employed October 15th 2024

Above you can see how the current ROCE for Grindwell Norton compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Grindwell Norton .

The Trend Of ROCE

Grindwell Norton deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 20% and the business has deployed 90% more capital into its operations. Now considering ROCE is an attractive 20%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 323% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing to note, we've identified 1 warning sign with Grindwell Norton and understanding it should be part of your investment process.

Grindwell Norton 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.