Here's What To Make Of Bajaj Hindusthan Sugar's (NSE:BAJAJHIND) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Bajaj Hindusthan Sugar (NSE:BAJAJHIND) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Bajaj Hindusthan Sugar is:

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

0.0091 = ₹839m ÷ (₹140b - ₹48b) (Based on the trailing twelve months to December 2023).

So, Bajaj Hindusthan Sugar has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Food industry average of 15%.

Check out our latest analysis for Bajaj Hindusthan Sugar

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 Bajaj Hindusthan Sugar has performed in the past in other metrics, you can view this free graph of Bajaj Hindusthan Sugar's past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for Bajaj Hindusthan Sugar's returns and its level of capital employed because both metrics have been steady for the past five years. 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Bajaj Hindusthan Sugar to be a multi-bagger going forward.

Our Take On Bajaj Hindusthan Sugar's ROCE

In a nutshell, Bajaj Hindusthan Sugar has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 274% gain to shareholders who have held over the last five years. 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 Bajaj Hindusthan Sugar that we think you should be aware of.

While Bajaj Hindusthan Sugar 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.