We Like These Underlying Return On Capital Trends At Deepak Fertilisers And Petrochemicals (NSE:DEEPAKFERT)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Deepak Fertilisers And Petrochemicals (NSE:DEEPAKFERT) and its trend of ROCE, we really liked what we saw.

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. 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)

0.17 = ₹11b ÷ (₹87b - ₹22b) (Based on the trailing twelve months to March 2022).

Thus, Deepak Fertilisers And Petrochemicals has an ROCE of 17%. By itself that's a normal return on capital and it's in line with the industry's average returns of 17%.

Check out our latest analysis for Deepak Fertilisers And Petrochemicals

Above you can see how the current ROCE for Deepak Fertilisers And Petrochemicals compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Deepak Fertilisers And Petrochemicals here for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Deepak Fertilisers And Petrochemicals. The data shows that returns on capital have increased substantially over the last five years to 17%. 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 156%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 26%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

To sum it up, Deepak Fertilisers And Petrochemicals has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 2 warning signs facing Deepak Fertilisers And Petrochemicals that you might find interesting.

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.