Returns At Deep Industries (NSE:DEEPINDS) Appear To Be Weighed Down

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Deep Industries (NSE:DEEPINDS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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 Deep Industries:

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

0.074 = ₹926m ÷ (₹13b - ₹658m) (Based on the trailing twelve months to December 2022).

So, Deep Industries has an ROCE of 7.4%. Even though it's in line with the industry average of 7.4%, it's still a low return by itself.

View our latest analysis for Deep Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Deep Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Deep Industries, check out these free graphs here.

SWOT Analysis for Deep Industries

What The Trend Of ROCE Can Tell Us

Over the past three years, Deep Industries' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Deep Industries doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Deep Industries' ROCE

We can conclude that in regards to Deep Industries' returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 26% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 1 warning sign for Deep Industries that we think you should be aware of.

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.