Ambuja Cements (NSE:AMBUJACEM) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Ambuja Cements (NSE:AMBUJACEM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. The formula for this calculation on Ambuja Cements is:

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

0.057 = ₹38b ÷ (₹809b - ₹138b) (Based on the trailing twelve months to June 2025).

Therefore, Ambuja Cements has an ROCE of 5.7%. Even though it's in line with the industry average of 6.1%, it's still a low return by itself.

See our latest analysis for Ambuja Cements

In the above chart we have measured Ambuja Cements' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ambuja Cements for free.

What Does the ROCE Trend For Ambuja Cements Tell Us?

When we looked at the ROCE trend at Ambuja Cements, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.7% from 10% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Ambuja Cements' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ambuja Cements. And long term investors must be optimistic going forward because the stock has returned a huge 206% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing to note, we've identified 1 warning sign with Ambuja Cements and understanding it should be part of your investment process.

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.