Here's What's Concerning About Deepak Nitrite's (NSE:DEEPAKNTR) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Deepak Nitrite (NSE:DEEPAKNTR), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Deepak Nitrite, this is the formula:

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

0.098 = ₹6.8b ÷ (₹79b - ₹8.9b) (Based on the trailing twelve months to September 2025).

Therefore, Deepak Nitrite has an ROCE of 9.8%. In absolute terms, that's a low return but it's around the Chemicals industry average of 12%.

View our latest analysis for Deepak Nitrite

In the above chart we have measured Deepak Nitrite's 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 Nitrite .

What Does the ROCE Trend For Deepak Nitrite Tell Us?

In terms of Deepak Nitrite's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 9.8% from 33% five years ago. However it looks like Deepak Nitrite might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Deepak Nitrite's ROCE

In summary, Deepak Nitrite is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 88% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 3 warning signs we've spotted with Deepak Nitrite (including 1 which is a bit unpleasant) .

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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.