Why We Like The Returns At Chemfab Alkalis (NSE:CHEMFAB)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of Chemfab Alkalis (NSE:CHEMFAB) looks great, so lets see what the trend can tell us.

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 Chemfab Alkalis:

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

0.20 = ₹608m ÷ (₹3.5b - ₹507m) (Based on the trailing twelve months to June 2022).

Therefore, Chemfab Alkalis has an ROCE of 20%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

Check out our latest analysis for Chemfab Alkalis

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chemfab Alkalis' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Chemfab Alkalis, check out these free graphs here.

How Are Returns Trending?

We like the trends that we're seeing from Chemfab Alkalis. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. The amount of capital employed has increased too, by 22%. So we're very much inspired by what we're seeing at Chemfab Alkalis thanks to its ability to profitably reinvest capital.

The Bottom Line On Chemfab Alkalis' ROCE

To sum it up, Chemfab Alkalis has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 86% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Chemfab Alkalis, we've spotted 3 warning signs, and 1 of them is concerning.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.