Here's What's Concerning About Ducol Organics And Colours' (NSE:DUCOL) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Ducol Organics And Colours (NSE:DUCOL), it didn't seem to tick all of these boxes.

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Understanding 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 Ducol Organics And Colours is:

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

0.044 = ₹52m ÷ (₹1.6b - ₹453m) (Based on the trailing twelve months to September 2025).

Therefore, Ducol Organics And Colours has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 12%.

See our latest analysis for Ducol Organics And Colours

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Ducol Organics And Colours has performed in the past in other metrics, you can view this free graph of Ducol Organics And Colours' past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at Ducol Organics And Colours doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.4% from 13% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, Ducol Organics And Colours has decreased its current liabilities to 28% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Ducol Organics And Colours' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ducol Organics And Colours. And the stock has followed suit returning a meaningful 14% to shareholders over the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 3 warning signs with Ducol Organics And Colours (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While Ducol Organics And Colours may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.