Indo Amines (NSE:INDOAMIN) Knows How To Allocate Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Indo Amines (NSE:INDOAMIN) looks attractive right now, so lets see what the trend of returns can tell us.

We've discovered 1 warning sign about Indo Amines. View them for free.

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. Analysts use this formula to calculate it for Indo Amines:

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

0.21 = ₹777m ÷ (₹7.3b - ₹3.7b) (Based on the trailing twelve months to December 2024).

Therefore, Indo Amines has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

Check out our latest analysis for Indo Amines

Historical performance is a great place to start when researching a stock so above you can see the gauge for Indo Amines' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Indo Amines.

What The Trend Of ROCE Can Tell Us

In terms of Indo Amines' history of ROCE, it's quite impressive. The company has employed 172% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Indo Amines' current liabilities are still rather high at 50% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Indo Amines' ROCE

Indo Amines has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 41% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 1 warning sign for Indo Amines you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.