Returns At De Nora India (NSE:DENORA) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at De Nora India (NSE:DENORA) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for De Nora India:

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

0.17 = ₹200m ÷ (₹1.3b - ₹70m) (Based on the trailing twelve months to March 2024).

Thus, De Nora India has an ROCE of 17%. That's a pretty standard return and it's in line with the industry average of 17%.

View our latest analysis for De Nora India

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how De Nora India has performed in the past in other metrics, you can view this free graph of De Nora India's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that De Nora India is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 17% which is a sight for sore eyes. In addition to that, De Nora India is employing 122% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, De Nora India has decreased current liabilities to 5.5% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On De Nora India's ROCE

To the delight of most shareholders, De Nora India has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for De Nora India that we think you should be aware of.

While De Nora India may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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