Returns On Capital Are Showing Encouraging Signs At Deepak Fertilisers And Petrochemicals (NSE:DEEPAKFERT)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Deepak Fertilisers And Petrochemicals (NSE:DEEPAKFERT) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Deepak Fertilisers And Petrochemicals is:

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

0.15 = ₹13b ÷ (₹122b - ₹38b) (Based on the trailing twelve months to September 2024).

So, Deepak Fertilisers And Petrochemicals has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 13% it's much better.

View 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're interested, you can view the analysts predictions in our free analyst report for Deepak Fertilisers And Petrochemicals .

What Can We Tell From Deepak Fertilisers And Petrochemicals' ROCE Trend?

The trends we've noticed at Deepak Fertilisers And Petrochemicals are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed 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.

What We Can Learn From Deepak Fertilisers And Petrochemicals' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Deepak Fertilisers And Petrochemicals has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Deepak Fertilisers And Petrochemicals can keep these trends up, it could have a bright future ahead.

Like most companies, Deepak Fertilisers And Petrochemicals does come with some risks, and we've found 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.