IFGL Refractories (NSE:IFGLEXPOR) Has Some Way To Go To Become A Multi-Bagger

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at IFGL Refractories (NSE:IFGLEXPOR), it didn't seem to tick all of these boxes.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for IFGL Refractories, this is the formula:

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

0.087 = ₹974m ÷ (₹14b - ₹3.1b) (Based on the trailing twelve months to March 2023).

Thus, IFGL Refractories has an ROCE of 8.7%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 6.7%.

See our latest analysis for IFGL Refractories

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 want to delve into the historical earnings, revenue and cash flow of IFGL Refractories, check out these free graphs here.

SWOT Analysis for IFGL Refractories

The Trend Of ROCE

The returns on capital haven't changed much for IFGL Refractories in recent years. Over the past five years, ROCE has remained relatively flat at around 8.7% and the business has deployed 44% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

Long story short, while IFGL Refractories has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 88% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing IFGL Refractories we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While IFGL Refractories 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.