Hatsun Agro Product (NSE:HATSUN) Hasn't Managed To Accelerate Its Returns

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. That's why when we briefly looked at Hatsun Agro Product's (NSE:HATSUN) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Hatsun Agro Product:

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

0.17 = ₹4.3b ÷ (₹39b - ₹13b) (Based on the trailing twelve months to December 2023).

Therefore, Hatsun Agro Product has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 15%.

See our latest analysis for Hatsun Agro Product

Above you can see how the current ROCE for Hatsun Agro Product 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 analyst report for Hatsun Agro Product .

What Can We Tell From Hatsun Agro Product's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 110% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

What We Can Learn From Hatsun Agro Product's ROCE

To sum it up, Hatsun Agro Product has simply been reinvesting capital steadily, at those decent rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Hatsun Agro Product (of which 1 makes us a bit uncomfortable!) that you should know about.

While Hatsun Agro Product isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.