Returns Are Gaining Momentum At Sarla Performance Fibers (NSE:SARLAPOLY)

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Sarla Performance Fibers (NSE:SARLAPOLY) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sarla Performance Fibers is:

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

0.12 = ₹618m ÷ (₹7.1b - ₹1.8b) (Based on the trailing twelve months to December 2024).

So, Sarla Performance Fibers has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

Check out our latest analysis for Sarla Performance Fibers

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

What Does the ROCE Trend For Sarla Performance Fibers Tell Us?

Sarla Performance Fibers' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 97% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Sarla Performance Fibers' ROCE

To sum it up, Sarla Performance Fibers is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 530% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Sarla Performance Fibers does have some risks though, and we've spotted 2 warning signs for Sarla Performance Fibers that you might be interested in.

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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.