Returns At Paras Defence and Space Technologies (NSE:PARAS) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Paras Defence and Space Technologies (NSE:PARAS) looks decent, right now, so lets see what the trend of returns can tell us.

We've discovered 1 warning sign about Paras Defence and Space Technologies. View them for free.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Paras Defence and Space Technologies is:

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

0.12 = ₹823m ÷ (₹8.5b - ₹1.9b) (Based on the trailing twelve months to March 2025).

Thus, Paras Defence and Space Technologies has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the Aerospace & Defense industry average it falls behind.

View our latest analysis for Paras Defence and Space Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Paras Defence and Space Technologies' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Paras Defence and Space Technologies.

So How Is Paras Defence and Space Technologies' ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 182% in that time. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

In the end, Paras Defence and Space Technologies has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 177% return they've received over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Paras Defence and Space Technologies does come with some risks, and we've found 1 warning sign that you should be aware of.

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.