Westlife

Westlife Development (NSE: WESTLIFE) could have the makings of a multi-bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should be looking for? First, we’ll want to see proof to return to on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. With this in mind, we have noticed some promising trends in Westlife Development (NSE:WESTLIFE) so let’s look a little deeper.

Understanding return on capital employed (ROCE)

If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. The formula for this calculation on Westlife Development is:

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

0.03 = ₹392m ÷ (₹18b – ₹4.4b) (Based on the last twelve months to December 2021).

Thereby, Westlife Development has a ROCE of 3.0%. Ultimately, that’s a poor performer, and it’s below the hotel industry average of 5.4%.

Check out our latest analysis for Westlife Development

NSEI: WESTLIFE Return on Capital Employed May 6, 2022

Above you can see how Westlife Development’s current ROCE compares to its past returns on capital, but there is little you can say about the past. If you want to see what analysts predict for the future, you should check out our free report for Westlife Development.

What can we say about the ROCE trend of Westlife Development?

We are delighted to see that Westlife Development is reaping the rewards of its investments and is now generating pre-tax profits. The shareholders would no doubt be delighted because the company was loss-making five years ago but today generates 3.0% on its capital. On top of that, Westlife Development employs 145% more capital than before, which is expected of a company trying to become profitable. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it continues, it can lead to multi-bagger performance.

Along the same lines, the company’s ratio of current liabilities to total assets has decreased to 25%, essentially reducing its funding from short-term creditors or vendors. This tells us that Westlife Development has increased its returns without depending on the increase in its current liabilities, which we are very pleased with.

What we can learn from Westlife Development’s ROCE

In short, we are delighted to see that Westlife Development’s reinvestment activities have paid off and the business is now profitable. Investors may not yet be impressed by the favorable underlying trends, as over the past year the stock has only returned 4.8% to shareholders. Given this, we would take a closer look at this stock in case it has more traits that can make it multiply in the long run.

Like most businesses, Westlife Development involves some risk, and we have found 1 warning sign of which you should be aware.

Although Westlife Development does not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.