Be Wary Of Yash Optics & Lens (NSE:YASHOPTICS) And Its 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Yash Optics & Lens (NSE:YASHOPTICS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. The formula for this calculation on Yash Optics & Lens is:

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

0.14 = ₹142m ÷ (₹1.1b - ₹83m) (Based on the trailing twelve months to March 2025).

So, Yash Optics & Lens has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Medical Equipment industry.

Check out our latest analysis for Yash Optics & Lens

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'd like to look at how Yash Optics & Lens has performed in the past in other metrics, you can view this free graph of Yash Optics & Lens' past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Yash Optics & Lens, we didn't gain much confidence. To be more specific, ROCE has fallen from 19% over the last four years. However it looks like Yash Optics & Lens might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Yash Optics & Lens' ROCE

Bringing it all together, while we're somewhat encouraged by Yash Optics & Lens' reinvestment in its own business, we're aware that returns are shrinking. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. 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 2 warning signs for Yash Optics & Lens (1 can't be ignored) you should be aware of.

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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.