Commercial Engineers & Body Builders Co (NSE:CEBBCO)’s return on investments hasn’t been short of growth lately

What trends should we be on the lookout for when trying to identify stocks that can multiply in value over the long term? Ideally, a company shows two trends; first a growth return on the capital employed (ROCE) and secondly an increasing amount of the capital employed. This shows us that this is a compounding machine capable of continuously reinvesting its profits in the business and generating higher returns. With that in mind, we’ve noticed some promising trends at Commercial Engineers & Coachbuilders Co (NSE:CEBBCO) So let’s take a closer look.

Understand return on capital employed (ROCE).

If you’ve never worked with ROCE, it measures the “return” (profit before tax) that a company earns on the capital employed in its business. Analysts use this formula to calculate it for Commercial Engineers & Body Builders Co:

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

0.14 = ₹197m ÷ (₹2.7b – ₹1.4b) (Based on the last twelve months ended December 2021).

Therefore, Commercial Engineers & Body Builders Co has a ROCE of 14%. In absolute terms, that’s a pretty standard return, and pretty close to the engineering industry average of 15%.

Check out our latest analysis for Commercial Engineers & Body Builders Co

NSEI: CEBBCO Return on Capital Employed April 2, 2022

Historical performance is a great place to start when researching a stock. Above is the measure of Commercial Engineers & Body Builders Co ROCE compared to past returns. If you want to look at how Commercial Engineers & Body Builders Co has performed historically in relation to other metrics, you can view this for free Chart of past earnings, earnings and cash flows.

What does the ROCE trend tell us for Commercial Engineers & Body Builders Co?

The fact that Commercial Engineers & Body Builders Co is now generating some pre-tax profits from its past investments is very encouraging. The company was making losses about five years ago, but things have turned around, as it now earns 14% of its capital. Not only that, the company is employing 61% more capital than before, but that’s to be expected from a company trying to break even. We like this trend because it tells us that profitable reinvestment opportunities are available to the company, and if they continue, it may lead to multibagger performance.

In this regard, the ratio of current liabilities to total assets of the company has fallen to 50%, essentially reducing its funding from short-term creditors or suppliers. This tells us that Commercial Engineers & Body Builders Co has increased its earnings without relying on an increase in its current liabilities, which we are very pleased about. Still, there are some potential risks the company bears with such high current liabilities, so just keep that in mind.

The key to take away

In short, we are pleased to see that Commercial Engineers & Body Builders Co’s reinvestment activities have paid off and the company is now profitable. And since the stock has performed exceptionally well over the past five years, investors are taking these patterns into account. With that in mind, we think this stock is worth a closer look as if Commercial Engineers & Body Builders Co can sustain these trends, it could have a bright future ahead of it.

However, Commercial Engineers & Body Builders Co does come with some risks, as we’ve found 2 warning signs in our investment analysis, and 1 of them is a bit worrying…

For those who like to invest solid companies, look at that for free List of companies with strong balance sheets and high returns on equity.

This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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