Our Take On The Returns On Capital At AYM Syntex (NSE:AYMSYNTEX)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating AYM Syntex (NSE:AYMSYNTEX), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. To calculate this metric for AYM Syntex, this is the formula:

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

0.061 = ₹300m ÷ (₹7.6b - ₹2.7b) (Based on the trailing twelve months to December 2020).

Therefore, AYM Syntex has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Luxury industry average of 9.5%.

See our latest analysis for AYM Syntex

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 AYM Syntex's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From AYM Syntex's ROCE Trend?

When we looked at the ROCE trend at AYM Syntex, we didn't gain much confidence. Around five years ago the returns on capital were 23%, but since then they've fallen to 6.1%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On AYM Syntex's ROCE

In summary, we're somewhat concerned by AYM Syntex's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last five years have experienced a 50% 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.

AYM Syntex does have some risks, we noticed 6 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While AYM Syntex isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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