N R Agarwal Industries (NSE:NRAIL) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 N R Agarwal Industries (NSE:NRAIL), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for N R Agarwal Industries:

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

0.047 = ₹625m ÷ (₹18b - ₹4.4b) (Based on the trailing twelve months to December 2024).

So, N R Agarwal Industries has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Packaging industry average of 11%.

Check out our latest analysis for N R Agarwal Industries

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're interested in investigating N R Agarwal Industries' past further, check out this free graph covering N R Agarwal Industries' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of N R Agarwal Industries' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 26% over the last five years. However it looks like N R Agarwal 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'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.

Our Take On N R Agarwal Industries' ROCE

To conclude, we've found that N R Agarwal 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.

N R Agarwal Industries does have some risks, we noticed 5 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While N R Agarwal Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.