We Like These Underlying Return On Capital Trends At Patanjali Foods (NSE:PATANJALI)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Patanjali Foods (NSE:PATANJALI) so let's look a bit deeper.

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 Patanjali Foods is:

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

0.12 = ₹13b ÷ (₹133b - ₹30b) (Based on the trailing twelve months to June 2024).

Thus, Patanjali Foods has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns 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're interested, you can view the analysts predictions in our free analyst report for Patanjali Foods .

The Trend Of ROCE

The trends we've noticed at Patanjali Foods are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 12%. The amount of capital employed has increased too, by 54%. So we're very much inspired by what we're seeing at Patanjali Foods thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Patanjali Foods has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 67% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. 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.

On a final note, we've found 1 warning sign for Patanjali Foods that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.