Deepak Fertilisers And Petrochemicals (NSE:DEEPAKFERT) Is Experiencing Growth In Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Deepak Fertilisers And Petrochemicals' (NSE:DEEPAKFERT) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Deepak Fertilisers And Petrochemicals, this is the formula:

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

0.18 = ₹15b ÷ (₹122b - ₹38b) (Based on the trailing twelve months to December 2024).

Thus, Deepak Fertilisers And Petrochemicals has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 13% it's much better.

See our latest analysis for Deepak Fertilisers And Petrochemicals

In the above chart we have measured Deepak Fertilisers And Petrochemicals' 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 Deepak Fertilisers And Petrochemicals .

What Does the ROCE Trend For Deepak Fertilisers And Petrochemicals Tell Us?

We like the trends that we're seeing from Deepak Fertilisers And Petrochemicals. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 107%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Deepak Fertilisers And Petrochemicals can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 1,373% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 3 warning signs for Deepak Fertilisers And Petrochemicals you'll probably want to know about.

While Deepak Fertilisers And Petrochemicals isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.