There Are Reasons To Feel Uneasy About Anjani Portland Cement's (NSE:APCL) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Anjani Portland Cement (NSE:APCL) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Anjani Portland Cement:

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

0.13 = ₹1.1b ÷ (₹12b - ₹3.1b) (Based on the trailing twelve months to September 2021).

So, Anjani Portland Cement has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

See our latest analysis for Anjani Portland Cement

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'd like to look at how Anjani Portland Cement has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Anjani Portland Cement Tell Us?

In terms of Anjani Portland Cement's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 21% 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.

The Bottom Line On Anjani Portland Cement's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Anjani Portland Cement is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 189% to shareholders in the last three years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One more thing to note, we've identified 3 warning signs with Anjani Portland Cement and understanding these should be part of your investment process.

While Anjani Portland Cement isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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