Aegis Logistics' (NSE:AEGISCHEM) Returns On Capital Not Reflecting Well On The Business

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. In light of that, when we looked at Aegis Logistics (NSE:AEGISCHEM) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Aegis Logistics is:

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

0.029 = ₹654m ÷ (₹29b - ₹6.2b) (Based on the trailing twelve months to December 2020).

So, Aegis Logistics has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 5.0%.

See our latest analysis for Aegis Logistics

Above you can see how the current ROCE for Aegis Logistics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Aegis Logistics' ROCE Trending?

When we looked at the ROCE trend at Aegis Logistics, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Aegis Logistics' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Aegis Logistics have fallen, meanwhile the business is employing more capital than it was five years ago. The market must be rosy on the stock's future because even though the underlying trends aren't too encouraging, the stock has soared 188%. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Like most companies, Aegis Logistics does come with some risks, and we've found 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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