Returns On Capital At Sutlej Textiles and Industries (NSE:SUTLEJTEX) Have Stalled

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. 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 briefly looking over the numbers, we don't think Sutlej Textiles and Industries (NSE:SUTLEJTEX) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Sutlej Textiles and Industries:

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

0.16 = ₹2.6b ÷ (₹24b - ₹8.6b) (Based on the trailing twelve months to March 2022).

Thus, Sutlej Textiles and Industries has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 13% generated by the Luxury industry.

Check out our latest analysis for Sutlej Textiles and Industries

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'd like to look at how Sutlej Textiles and Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Over the past five years, Sutlej Textiles and Industries' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Sutlej Textiles and Industries in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Sutlej Textiles and Industries' ROCE

In a nutshell, Sutlej Textiles and Industries has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 33% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Sutlej Textiles and Industries has the makings of a multi-bagger.

One final note, you should learn about the 4 warning signs we've spotted with Sutlej Textiles and Industries (including 2 which can't be ignored) .

While Sutlej Textiles and Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.