Here's What To Make Of Sukhjit Starch & Chemicals' (NSE:SUKHJITS) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Sukhjit Starch & Chemicals' (NSE:SUKHJITS) ROCE trend, we were pretty happy with what we saw.

We've discovered 3 warning signs about Sukhjit Starch & Chemicals. View them for free.

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. To calculate this metric for Sukhjit Starch & Chemicals, this is the formula:

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

0.13 = ₹951m ÷ (₹11b - ₹3.4b) (Based on the trailing twelve months to December 2024).

So, Sukhjit Starch & Chemicals has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

View our latest analysis for Sukhjit Starch & Chemicals

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sukhjit Starch & Chemicals' 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 Sukhjit Starch & Chemicals.

What Can We Tell From Sukhjit Starch & Chemicals' ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 32% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Sukhjit Starch & Chemicals has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Sukhjit Starch & Chemicals' ROCE

The main thing to remember is that Sukhjit Starch & Chemicals has proven its ability to continually reinvest at respectable rates of return. However, over the last year, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you want to know some of the risks facing Sukhjit Starch & Chemicals we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.