There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Hi-Tech Gears (NSE:HITECHGEAR) we aren’t jumping out of our chairs at how returns are trending, but let’s have a deeper look.
What is 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 Hi-Tech Gears is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.10 = ₹682m ÷ (₹9.2b – ₹2.6b) (Based on the trailing twelve…