Returns On Capital Signal Tricky Times Ahead For Ganges Securities (NSE:GANGESSECU)

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.013 = ₹75m ÷ (₹5.7b - ₹32m) (Based on the trailing twelve months to June 2024).

Thus, Ganges Securities has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 13%.

Check out 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'd like to look at how Ganges Securities has performed in the past in other metrics, you can view this free graph of Ganges Securities' past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Ganges Securities, we didn't gain much confidence. To be more specific, ROCE has fallen from 2.6% over the last five years. 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 Key Takeaway

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 428% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One final note, you should learn about the 3 warning signs we've spotted with Ganges Securities (including 1 which 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.