We Like Synergy Green Industries' (NSE:SGIL) Returns And Here's How They're Trending

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So when we looked at the ROCE trend of Synergy Green Industries (NSE:SGIL) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Synergy Green Industries, this is the formula:

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

0.35 = ₹339m ÷ (₹2.4b - ₹1.4b) (Based on the trailing twelve months to December 2024).

So, Synergy Green Industries has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

View our latest analysis for Synergy Green Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Synergy Green Industries' ROCE against it's prior returns. If you're interested in investigating Synergy Green Industries' past further, check out this free graph covering Synergy Green Industries' past earnings, revenue and cash flow.

What Can We Tell From Synergy Green Industries' ROCE Trend?

The trends we've noticed at Synergy Green Industries are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 35%. The amount of capital employed has increased too, by 55%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Synergy Green Industries has a current liabilities to total assets ratio of 59%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Synergy Green Industries' ROCE

To sum it up, Synergy Green Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 156% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 2 warning signs we've spotted with Synergy Green Industries (including 1 which can't be ignored) .

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.