Some Investors May Be Worried About Fine Organic Industries' (NSE:FINEORG) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, while the ROCE is currently high for Fine Organic Industries (NSE:FINEORG), we aren't jumping out of our chairs because returns are decreasing.

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

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. To calculate this metric for Fine Organic Industries, this is the formula:

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

0.23 = ₹4.8b ÷ (₹23b - ₹2.3b) (Based on the trailing twelve months to December 2024).

Therefore, Fine Organic Industries has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 12%.

See our latest analysis for Fine Organic Industries

Above you can see how the current ROCE for Fine Organic Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fine Organic Industries .

How Are Returns Trending?

On the surface, the trend of ROCE at Fine Organic Industries doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 32% where it was five years ago. However it looks like Fine Organic Industries 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.

The Bottom Line On Fine Organic Industries' ROCE

To conclude, we've found that Fine Organic Industries is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 59% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Fine Organic Industries it's worth checking out our FREE intrinsic value approximation for FINEORG to see if it's trading at an attractive price in other respects.

Fine Organic Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.