Some Investors May Be Worried About Niraj Cement Structurals' (NSE:NIRAJ) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Niraj Cement Structurals (NSE:NIRAJ), we've spotted some signs that it could be struggling, so let's investigate.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Niraj Cement Structurals, this is the formula:

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

0.0031 = ₹5.8m ÷ (₹3.0b - ₹1.1b) (Based on the trailing twelve months to December 2021).

Therefore, Niraj Cement Structurals has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 11%.

View our latest analysis for Niraj Cement Structurals

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're interested in investigating Niraj Cement Structurals' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Niraj Cement Structurals Tell Us?

We are a bit anxious about the trends of ROCE at Niraj Cement Structurals. To be more specific, today's ROCE was 0.8% five years ago but has since fallen to 0.3%. On top of that, the business is utilizing 23% less capital within its operations. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

On a side note, Niraj Cement Structurals' current liabilities have increased over the last five years to 37% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 0.3%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

What We Can Learn From Niraj Cement Structurals' ROCE

To see Niraj Cement Structurals reducing the capital employed in the business in tandem with diminishing returns, is concerning. Long term shareholders who've owned the stock over the last year have experienced a 33% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Niraj Cement Structurals does have some risks though, and we've spotted 4 warning signs for Niraj Cement Structurals that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.