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

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Damodar Industries (NSE:DAMODARIND), it didn't seem to tick all of these boxes.

Our free stock report includes 3 warning signs investors should be aware of before investing in Damodar Industries. Read for free now.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Damodar Industries:

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

0.061 = ₹141m ÷ (₹3.7b - ₹1.4b) (Based on the trailing twelve months to December 2024).

Therefore, Damodar Industries has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 12%.

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Damodar Industries.

How Are Returns Trending?

Over the past five years, Damodar Industries' ROCE has remained relatively flat while the business is using 28% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Key Takeaway

In summary, Damodar Industries isn't reinvesting funds back into the business and returns aren't growing. Since the stock has gained an impressive 83% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Damodar Industries does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit concerning...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.