Returns On Capital At Aries Agro (NSE:ARIES) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. That's why when we briefly looked at Aries Agro's (NSE:ARIES) ROCE trend, we were pretty happy with what we saw.

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Return On Capital Employed (ROCE): What Is It?

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 Aries Agro, this is the formula:

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

0.17 = ₹581m ÷ (₹5.8b - ₹2.4b) (Based on the trailing twelve months to March 2025).

Therefore, Aries Agro has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 11% it's much better.

See our latest analysis for Aries Agro

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aries Agro's ROCE against it's prior returns. If you're interested in investigating Aries Agro's past further, check out this free graph covering Aries Agro's past earnings, revenue and cash flow.

So How Is Aries Agro's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 40% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 40%, some of that risk is still prevalent.

In Conclusion...

In the end, Aries Agro has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 459% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 2 warning signs facing Aries Agro that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.