Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we’ve noticed some promising trends at Olectra Greentech (NSE:OLECTRA) so let’s look a bit deeper.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Olectra Greentech is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.16 = ₹1.5b ÷ (₹16b – ₹6.6b) (Based on…
