Returns On Capital Are Showing Encouraging Signs At Patanjali Foods (NSE:PATANJALI)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Patanjali Foods (NSE:PATANJALI) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Patanjali Foods:

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

0.12 = ₹14b ÷ (₹140b - ₹31b) (Based on the trailing twelve months to September 2024).

Therefore, Patanjali Foods has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

Check out our latest analysis for Patanjali Foods

In the above chart we have measured Patanjali Foods' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Patanjali Foods .

What Can We Tell From Patanjali Foods' ROCE Trend?

Investors would be pleased with what's happening at Patanjali Foods. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 12%. The amount of capital employed has increased too, by 59%. So we're very much inspired by what we're seeing at Patanjali Foods thanks to its ability to profitably reinvest capital.

What We Can Learn From Patanjali Foods' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Patanjali Foods has. Since the stock has returned a staggering 108% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for PATANJALI that compares the share price and estimated value.

While Patanjali Foods 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.