Davangere Sugar's (NSE:DAVANGERE) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Davangere Sugar (NSE:DAVANGERE) and its ROCE trend, we weren't exactly thrilled.

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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. The formula for this calculation on Davangere Sugar is:

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

0.069 = ₹416m ÷ (₹7.7b - ₹1.7b) (Based on the trailing twelve months to September 2025).

Therefore, Davangere Sugar has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Food industry average of 14%.

View our latest analysis for Davangere Sugar

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Davangere Sugar's past further, check out this free graph covering Davangere Sugar's past earnings, revenue and cash flow.

So How Is Davangere Sugar's ROCE Trending?

The returns on capital haven't changed much for Davangere Sugar in recent years. Over the past five years, ROCE has remained relatively flat at around 6.9% and the business has deployed 77% 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.

What We Can Learn From Davangere Sugar's ROCE

As we've seen above, Davangere Sugar's returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 18% in the last year. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing: We've identified 4 warning signs with Davangere Sugar (at least 2 which are significant) , and understanding these would certainly be useful.

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.