Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) and its trend of ROCE, we really liked what we saw.

What is 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. 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)

0.17 = ₹4.3b ÷ (₹37b - ₹12b) (Based on the trailing twelve months to March 2021).

Therefore, Dalmia Bharat Sugar and Industries has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 12% it's much better.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

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

Dalmia Bharat Sugar and Industries is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 123% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Dalmia Bharat Sugar and Industries has decreased current liabilities to 31% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Dalmia Bharat Sugar and Industries' ROCE

To sum it up, Dalmia Bharat Sugar and Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 273% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Dalmia Bharat Sugar and Industries does have some risks though, and we've spotted 3 warning signs for Dalmia Bharat Sugar and Industries that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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