Why HIL’s 21% Return on Capital (NSE: HIL) Should Hold Your Attention
What are the first trends to look for to identify a title that could multiply over the long term? First, we will want to see a return on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Basically, it means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a dialing machine. With this in mind, the ROCE of HIL (NSE: HIL) looks great, so let’s see what the trend can tell us.
Understanding Return on Capital Employed (ROCE)
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. Analysts use this formula to calculate it for HIL:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.21 = 3.0b ÷ (₹ 21b – ₹ 7.0b) (Based on the last twelve months up to March 2021).
Therefore, HIL has a ROCE of 21%. This is a fantastic return and not only that, it exceeds the 13% average earned by companies in a similar industry.
Check out our latest review for HIL
Historical performance is a great place to start when researching a stock, so above you can see the gauge of HIL’s ROCE against its past returns. If you want to dig deeper into HIL’s past, check out this free graph of past income, income and cash flow.
So what’s the HIL ROCE trend?
We love the trends we see from HIL. Over the past five years, returns on capital employed have increased substantially to 21%. The company actually makes more money per dollar of capital employed, and it should be noted that the amount of capital has also increased, by 143%. This may indicate that there are plenty of opportunities to invest capital in-house and at ever higher rates, a common combination among multi-baggers.
The bottom line
To sum up, HIL has proven that it can reinvest in the business and generate higher returns on capital employed, which is great. Given that the stock has returned 838% to shareholders over the past five years, it seems investors are recognizing these changes. So, given that the stock has proven to have some promising trends, it is worth doing more research on the company to see if these trends are likely to continue.
If you want to continue your research on HIL, you might be interested in knowing the 3 warning signs that our analysis uncovered.
If you want to look for other stocks that have delivered high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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