If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Ambani Orgochem (NSE:AMBANIORGO), we don't think it's current trends fit the mold of a multi-bagger.
Understanding 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. Analysts use this formula to calculate it for Ambani Orgochem:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = ₹63m ÷ (₹2.1b - ₹1.2b) (Based on the trailing twelve months to March 2025).
So, Ambani Orgochem has an ROCE of 7.3%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 11%.
Check out our latest analysis for Ambani Orgochem
Historical performance is a great place to start when researching a stock so above you can see the gauge for Ambani Orgochem's ROCE against it's prior returns. If you'd like to look at how Ambani Orgochem has performed in the past in other metrics, you can view this free graph of Ambani Orgochem's past earnings, revenue and cash flow.
What Does the ROCE Trend For Ambani Orgochem Tell Us?
The trend of ROCE doesn't look fantastic because it's fallen from 17% five years ago, while the business's capital employed increased by 213%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Ambani Orgochem's earnings and if they change as a result from the capital raise.
On a separate but related note, it's important to know that Ambani Orgochem has a current liabilities to total assets ratio of 59%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
Our Take On Ambani Orgochem's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Ambani Orgochem is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 32% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.
One more thing, we've spotted 4 warning signs facing Ambani Orgochem that you might find interesting.
While Ambani Orgochem 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.
Valuation is complex, but we're here to simplify it.
Discover if Ambani Orgochem might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.