Godavari Biorefineries (NSE:GODAVARIB) Could Be Struggling To Allocate Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 briefly looking over the numbers, we don't think Godavari Biorefineries (NSE:GODAVARIB) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. The formula for this calculation on Godavari Biorefineries is:

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

0.091 = ₹983m ÷ (₹15b - ₹3.9b) (Based on the trailing twelve months to September 2025).

So, Godavari Biorefineries has an ROCE of 9.1%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

Check out our latest analysis for Godavari Biorefineries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Godavari Biorefineries' ROCE against it's prior returns. If you'd like to look at how Godavari Biorefineries has performed in the past in other metrics, you can view this free graph of Godavari Biorefineries' past earnings, revenue and cash flow.

What Can We Tell From Godavari Biorefineries' ROCE Trend?

In terms of Godavari Biorefineries' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 9.1%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Godavari Biorefineries has decreased its current liabilities to 26% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Godavari Biorefineries' ROCE

In summary, Godavari Biorefineries is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Godavari Biorefineries does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

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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.