Century Plyboards (India) (NSE:CENTURYPLY) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Century Plyboards (India) (NSE:CENTURYPLY) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. To calculate this metric for Century Plyboards (India), this is the formula:

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

0.14 = ₹3.7b ÷ (₹41b - ₹15b) (Based on the trailing twelve months to December 2024).

So, Century Plyboards (India) has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Forestry industry.

See our latest analysis for Century Plyboards (India)

In the above chart we have measured Century Plyboards (India)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Century Plyboards (India) .

What Does the ROCE Trend For Century Plyboards (India) Tell Us?

On the surface, the trend of ROCE at Century Plyboards (India) doesn't inspire confidence. To be more specific, ROCE has fallen from 24% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Century Plyboards (India)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Century Plyboards (India) is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 543% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

One final note, you should learn about the 2 warning signs we've spotted with Century Plyboards (India) (including 1 which doesn't sit too well with us) .

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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.