The Returns At Vardhman Acrylics (NSE:VARDHACRLC) Aren't Growing

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Vardhman Acrylics (NSE:VARDHACRLC), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Vardhman Acrylics, this is the formula:

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

0.096 = ₹404m ÷ (₹5.1b - ₹949m) (Based on the trailing twelve months to December 2021).

So, Vardhman Acrylics has an ROCE of 9.6%. Ultimately, that's a low return and it under-performs the Luxury industry average of 14%.

See our latest analysis for Vardhman Acrylics

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

What Does the ROCE Trend For Vardhman Acrylics Tell Us?

There hasn't been much to report for Vardhman Acrylics' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Vardhman Acrylics in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

In summary, Vardhman Acrylics isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 81% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing to note, we've identified 3 warning signs with Vardhman Acrylics and understanding these should be part of your investment process.

While Vardhman Acrylics 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.