Vishwaraj Sugar Industries' (NSE:VISHWARAJ) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Vishwaraj Sugar Industries (NSE:VISHWARAJ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Vishwaraj Sugar Industries is:

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

0.07 = ₹347m ÷ (₹6.9b - ₹2.0b) (Based on the trailing twelve months to September 2024).

Therefore, Vishwaraj Sugar Industries has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

See our latest analysis for Vishwaraj Sugar Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Vishwaraj Sugar Industries' past further, check out this free graph covering Vishwaraj Sugar Industries' past earnings, revenue and cash flow.

What Can We Tell From Vishwaraj Sugar Industries' ROCE Trend?

The returns on capital haven't changed much for Vishwaraj Sugar Industries in recent years. The company has consistently earned 7.0% for the last five years, and the capital employed within the business has risen 64% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 29% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In summary, Vishwaraj Sugar Industries has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 25% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 5 warning signs for Vishwaraj Sugar Industries (3 shouldn't be ignored) 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.