Ashapura Minechem (NSE:ASHAPURMIN) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Ashapura Minechem (NSE:ASHAPURMIN) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Ashapura Minechem:

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

0.10 = ₹2.0b ÷ (₹38b - ₹19b) (Based on the trailing twelve months to September 2024).

Therefore, Ashapura Minechem has an ROCE of 10%. In isolation, that's a pretty standard return but against the Metals and Mining industry average of 14%, it's not as good.

Check out our latest analysis for Ashapura Minechem

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 Ashapura Minechem's past further, check out this free graph covering Ashapura Minechem's past earnings, revenue and cash flow.

What Does the ROCE Trend For Ashapura Minechem Tell Us?

Ashapura Minechem has recently broken into profitability so their prior investments seem to be paying off. About four years ago the company was generating losses but things have turned around because it's now earning 10% on its capital. And unsurprisingly, like most companies trying to break into the black, Ashapura Minechem is utilizing 59% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 50% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Bottom Line On Ashapura Minechem's ROCE

To the delight of most shareholders, Ashapura Minechem has now broken into profitability. Since the stock has returned a staggering 1,754% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Ashapura Minechem can keep these trends up, it could have a bright future ahead.

On a final note, we found 4 warning signs for Ashapura Minechem (3 shouldn't be ignored) you should be aware of.

While Ashapura Minechem 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.

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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.