Some Investors May Be Worried About Zydus Wellness' (NSE:ZYDUSWELL) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Zydus Wellness (NSE:ZYDUSWELL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

What Is 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 Zydus Wellness:

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

0.035 = ₹3.3b ÷ (₹99b - ₹6.1b) (Based on the trailing twelve months to September 2025).

So, Zydus Wellness has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

See our latest analysis for Zydus Wellness

In the above chart we have measured Zydus Wellness' 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 Zydus Wellness .

What Can We Tell From Zydus Wellness' ROCE Trend?

On the surface, the trend of ROCE at Zydus Wellness doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.5% from 6.0% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Zydus Wellness has done well to pay down its current liabilities to 6.2% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Zydus Wellness' ROCE

While returns have fallen for Zydus Wellness in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 21% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Zydus Wellness does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Zydus Wellness may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.