Here's What's Concerning About Advanced Enzyme Technologies' (NSE:ADVENZYMES) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after briefly looking over the numbers, we don't think Advanced Enzyme Technologies (NSE:ADVENZYMES) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Advanced Enzyme Technologies, this is the formula:

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

0.10 = ₹1.6b ÷ (₹16b - ₹968m) (Based on the trailing twelve months to March 2025).

Thus, Advanced Enzyme Technologies has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Chemicals industry.

View our latest analysis for Advanced Enzyme Technologies

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 Advanced Enzyme Technologies' past further, check out this free graph covering Advanced Enzyme Technologies' past earnings, revenue and cash flow.

What Does the ROCE Trend For Advanced Enzyme Technologies Tell Us?

When we looked at the ROCE trend at Advanced Enzyme Technologies, we didn't gain much confidence. To be more specific, ROCE has fallen from 19% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Advanced Enzyme Technologies is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 76% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Advanced Enzyme Technologies does have some risks though, and we've spotted 1 warning sign for Advanced Enzyme Technologies that you might be interested in.

While Advanced Enzyme Technologies 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.