E.I.D.- Parry (India) (NSE:EIDPARRY) Is Reinvesting To Multiply In Value

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So, when we ran our eye over E.I.D.- Parry (India)'s (NSE:EIDPARRY) trend of ROCE, we really liked what we saw.

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

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. Analysts use this formula to calculate it for E.I.D.- Parry (India):

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

0.25 = ₹29b ÷ (₹189b - ₹74b) (Based on the trailing twelve months to September 2023).

Thus, E.I.D.- Parry (India) has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 14%.

View our latest analysis for E.I.D.- Parry (India)

Above you can see how the current ROCE for E.I.D.- Parry (India) 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 E.I.D.- Parry (India) here for free.

What Does the ROCE Trend For E.I.D.- Parry (India) Tell Us?

It's hard not to be impressed by E.I.D.- Parry (India)'s returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 143% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

On a side note, E.I.D.- Parry (India) has done well to reduce current liabilities to 39% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On E.I.D.- Parry (India)'s ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 194% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching E.I.D.- Parry (India), you might be interested to know about the 1 warning sign that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.