Ganges Securities (NSE:GANGESSECU) Is Reinvesting At Lower Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Ganges Securities (NSE:GANGESSECU), we don't think it's current trends fit the mold of a multi-bagger.

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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 Ganges Securities is:

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

0.0098 = ₹73m ÷ (₹7.5b - ₹15m) (Based on the trailing twelve months to December 2024).

Thus, Ganges Securities has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 13%.

See our latest analysis for Ganges Securities

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ganges Securities' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ganges Securities.

The Trend Of ROCE

On the surface, the trend of ROCE at Ganges Securities doesn't inspire confidence. Over the last five years, returns on capital have decreased to 1.0% from 2.8% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Ganges Securities' ROCE

In summary, Ganges Securities is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 632% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know more about Ganges Securities, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Ganges Securities may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.