Stock Analysis

Returns on Capital Paint A Bright Future For Indo Borax & Chemicals (NSE:INDOBORAX)

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Indo Borax & Chemicals' (NSE:INDOBORAX) look very promising so lets take a look.

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. To calculate this metric for Indo Borax & Chemicals, this is the formula:

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

0.20 = ₹559m ÷ (₹2.9b - ₹131m) (Based on the trailing twelve months to September 2023).

So, Indo Borax & Chemicals has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for Indo Borax & Chemicals

NSEI:INDOBORAX Return on Capital Employed February 14th 2024

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

What Can We Tell From Indo Borax & Chemicals' ROCE Trend?

Investors would be pleased with what's happening at Indo Borax & Chemicals. Over the last five years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 139%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Indo Borax & Chemicals' ROCE

All in all, it's terrific to see that Indo Borax & Chemicals is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 38% return over the last year. In light of that, we think it's worth looking further into this stock because if Indo Borax & Chemicals can keep these trends up, it could have a bright future ahead.

Like most companies, Indo Borax & Chemicals does come with some risks, and we've found 1 warning sign that you should be aware of.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Indo Borax & Chemicals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.