Slowing Rates Of Return At Damodar Industries (NSE:DAMODARIND) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Damodar Industries' (NSE:DAMODARIND) trend of ROCE, we 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 Damodar Industries, this is the formula:

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

0.17 = ₹469m ÷ (₹3.9b - ₹1.1b) (Based on the trailing twelve months to September 2022).

Therefore, Damodar Industries has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 13% it's much better.

View our latest analysis for Damodar Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Damodar Industries' ROCE against it's prior returns. If you'd like to look at how Damodar Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Damodar Industries' ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 122% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that Damodar Industries has consistently earned this amount. 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.

What We Can Learn From Damodar Industries' ROCE

The main thing to remember is that Damodar Industries has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 17%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One final note, you should learn about the 4 warning signs we've spotted with Damodar Industries (including 2 which don't sit too well with us) .

While Damodar Industries 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. 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.