Returns On Capital Are Showing Encouraging Signs At Archean Chemical Industries (NSE:ACI)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Archean Chemical Industries (NSE:ACI) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Archean Chemical Industries:

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

0.12 = ₹2.4b ÷ (₹22b - ₹1.2b) (Based on the trailing twelve months to December 2024).

So, Archean Chemical Industries has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Chemicals industry.

Check out our latest analysis for Archean Chemical Industries

Above you can see how the current ROCE for Archean Chemical Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Archean Chemical Industries .

What Can We Tell From Archean Chemical Industries' ROCE Trend?

The trends we've noticed at Archean Chemical Industries are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 78% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

In summary, it's great to see that Archean Chemical Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 13% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Archean Chemical Industries does come with some risks, and we've found 2 warning signs that you should be aware of.

While Archean Chemical Industries 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.

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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.