Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Dalmia Bharat Sugar and Industries:

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

0.095 = ₹3.4b ÷ (₹52b - ₹16b) (Based on the trailing twelve months to June 2024).

So, Dalmia Bharat Sugar and Industries has an ROCE of 9.5%. Ultimately, that's a low return and it under-performs the Food industry average of 12%.

Check out our latest analysis for Dalmia Bharat Sugar and Industries

Above you can see how the current ROCE for Dalmia Bharat Sugar and Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Dalmia Bharat Sugar and Industries .

So How Is Dalmia Bharat Sugar and Industries' ROCE Trending?

The returns on capital haven't changed much for Dalmia Bharat Sugar and Industries in recent years. Over the past five years, ROCE has remained relatively flat at around 9.5% and the business has deployed 67% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

Long story short, while Dalmia Bharat Sugar and Industries has been reinvesting its capital, the returns that it's generating haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 501% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

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

While Dalmia Bharat Sugar and Industries 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.