Bannari Amman Sugars (NSE:BANARISUG) Will Be Hoping To Turn Its Returns On Capital Around

What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. In light of that, from a first glance at Bannari Amman Sugars (NSE:BANARISUG), we've spotted some signs that it could be struggling, so let's investigate.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Bannari Amman Sugars:

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

0.079 = ₹1.3b ÷ (₹24b - ₹7.9b) (Based on the trailing twelve months to September 2021).

Thus, Bannari Amman Sugars has an ROCE of 7.9%. Ultimately, that's a low return and it under-performs the Food industry average of 12%.

See our latest analysis for Bannari Amman Sugars

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

So How Is Bannari Amman Sugars' ROCE Trending?

In terms of Bannari Amman Sugars' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 19% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Bannari Amman Sugars becoming one if things continue as they have.

Our Take On Bannari Amman Sugars' ROCE

In summary, it's unfortunate that Bannari Amman Sugars is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 35% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to know some of the risks facing Bannari Amman Sugars we've found 4 warning signs (2 are concerning!) that you should be aware of before investing here.

While Bannari Amman Sugars may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.