Under The Bonnet, Alkyl Amines Chemicals' (NSE:ALKYLAMINE) Returns Look Impressive

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, the ROCE of Alkyl Amines Chemicals (NSE:ALKYLAMINE) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

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 Alkyl Amines Chemicals, this is the formula:

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

0.38 = ₹3.6b ÷ (₹12b - ₹2.4b) (Based on the trailing twelve months to December 2021).

So, Alkyl Amines Chemicals has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 17%.

View our latest analysis for Alkyl Amines Chemicals

In the above chart we have measured Alkyl Amines Chemicals' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Alkyl Amines Chemicals' ROCE Trend?

The trends we've noticed at Alkyl Amines Chemicals are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 38%. The amount of capital employed has increased too, by 194%. So we're very much inspired by what we're seeing at Alkyl Amines Chemicals thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 20%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Alkyl Amines Chemicals has. And a remarkable 2,168% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Alkyl Amines Chemicals looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ALKYLAMINE is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.