A Look Into Deccan Cements' (NSE:DECCANCE) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Deccan Cements' (NSE:DECCANCE) ROCE trend, we were very happy with what we saw.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Deccan Cements is:

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

0.21 = ₹1.3b ÷ (₹7.9b - ₹1.7b) (Based on the trailing twelve months to December 2020).

So, Deccan Cements has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

See our latest analysis for Deccan Cements

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

What The Trend Of ROCE Can Tell Us

In terms of Deccan Cements' history of ROCE, it's quite impressive. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 41% in that time. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

In Conclusion...

Deccan Cements has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, over the last five years, the stock has only delivered a 29% return to shareholders who held over that period. So to determine if Deccan Cements is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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