Zydus Wellness (NSE:ZYDUSWELL) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Zydus Wellness (NSE:ZYDUSWELL) and its trend of ROCE, we really liked what we saw.

We've discovered 1 warning sign about Zydus Wellness. View them for free.

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. To calculate this metric for Zydus Wellness, this is the formula:

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

0.06 = ₹3.3b ÷ (₹60b - ₹4.9b) (Based on the trailing twelve months to December 2024).

Therefore, Zydus Wellness has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

Check out 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 The Trend Of ROCE Can Tell Us

Zydus Wellness' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 31% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To sum it up, Zydus Wellness is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 1 warning sign with Zydus Wellness and understanding this should be part of your investment process.

While Zydus Wellness 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.