The Trends At Insecticides (India) (NSE:INSECTICID) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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, from a first glance at Insecticides (India) (NSE:INSECTICID) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Insecticides (India):

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

0.12 = ₹1.0b ÷ (₹13b - ₹4.6b) (Based on the trailing twelve months to December 2020).

So, Insecticides (India) has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 15% generated by the Chemicals industry.

See our latest analysis for Insecticides (India)

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

What Can We Tell From Insecticides (India)'s ROCE Trend?

On the surface, the trend of ROCE at Insecticides (India) doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 17% five years ago. However it looks like Insecticides (India) 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Insecticides (India) has done well to pay down its current liabilities to 36% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Insecticides (India)'s ROCE

To conclude, we've found that Insecticides (India) is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 43% 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'd like to know about the risks facing Insecticides (India), we've discovered 1 warning sign that you should be aware of.

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