Returns Are Gaining Momentum At Ambica Agarbathies Aroma & Industries (NSE:AMBICAAGAR)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Ambica Agarbathies Aroma & Industries (NSE:AMBICAAGAR) so let's look a bit deeper.

What Is 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 Ambica Agarbathies Aroma & Industries is:

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

0.034 = ₹65m ÷ (₹2.1b - ₹243m) (Based on the trailing twelve months to December 2023).

Therefore, Ambica Agarbathies Aroma & Industries has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 14%.

See our latest analysis for Ambica Agarbathies Aroma & Industries

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 Ambica Agarbathies Aroma & Industries' past further, check out this free graph covering Ambica Agarbathies Aroma & Industries' past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Ambica Agarbathies Aroma & Industries is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 3.4% on its capital. While returns have increased, the amount of capital employed by Ambica Agarbathies Aroma & Industries has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Ambica Agarbathies Aroma & Industries' ROCE

In summary, we're delighted to see that Ambica Agarbathies Aroma & Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 33% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Ambica Agarbathies Aroma & Industries can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Ambica Agarbathies Aroma & Industries, we've spotted 4 warning signs, and 3 of them are a bit unpleasant.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.