Hi-Green Carbon (NSE:HIGREEN) Might Have The Makings Of A Multi-Bagger

Simply Wall St · 10/15 00:47

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Hi-Green Carbon (NSE:HIGREEN) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Hi-Green Carbon, this is the formula:

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

0.16 = ₹148m ÷ (₹1.1b - ₹154m) (Based on the trailing twelve months to March 2024).

So, Hi-Green Carbon has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 14%.

View our latest analysis for Hi-Green Carbon

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

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 Hi-Green Carbon's past further, check out this free graph covering Hi-Green Carbon's past earnings, revenue and cash flow.

So How Is Hi-Green Carbon's ROCE Trending?

Investors would be pleased with what's happening at Hi-Green Carbon. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 309% 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.

One more thing to note, Hi-Green Carbon has decreased current liabilities to 15% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

All in all, it's terrific to see that Hi-Green Carbon is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 97% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 4 warning signs for Hi-Green Carbon (2 are concerning) you should be aware of.

While Hi-Green Carbon may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.