Here's What's Concerning About CCL Products (India)'s (NSE:CCL) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at CCL Products (India) (NSE:CCL) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on CCL Products (India) is:

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

0.19 = ₹2.8b ÷ (₹18b - ₹4.2b) (Based on the trailing twelve months to December 2021).

So, CCL Products (India) has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 12% it's much better.

See our latest analysis for CCL Products (India)

In the above chart we have measured CCL Products (India)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CCL Products (India).

What Can We Tell From CCL Products (India)'s ROCE Trend?

On the surface, the trend of ROCE at CCL Products (India) doesn't inspire confidence. Over the last five years, returns on capital have decreased to 19% from 32% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On CCL Products (India)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that CCL Products (India) is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 64% over the last five years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we've found 1 warning sign for CCL Products (India) 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.