Dalmia Bharat Sugar and Industries' (NSE:DALMIASUG) Returns Have Hit A Wall

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Dalmia Bharat Sugar and Industries (NSE:DALMIASUG) looks decent, right now, so lets see what the trend of returns can tell us.

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. 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)

0.12 = ₹4.2b ÷ (₹39b - ₹3.3b) (Based on the trailing twelve months to December 2023).

Therefore, Dalmia Bharat Sugar and Industries has an ROCE of 12%. In isolation, that's a pretty standard return but against the Food industry average of 15%, it's not as good.

Check out our latest analysis for Dalmia Bharat Sugar and Industries

In the above chart we have measured Dalmia Bharat Sugar and Industries' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Dalmia Bharat Sugar and Industries .

What The Trend Of ROCE Can Tell Us

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 71% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Dalmia Bharat Sugar and Industries has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Dalmia Bharat Sugar and Industries has done well to reduce current liabilities to 8.5% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Dalmia Bharat Sugar and Industries' ROCE

To sum it up, Dalmia Bharat Sugar and Industries has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 239% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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

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. 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.