There Are Reasons To Feel Uneasy About N R Agarwal Industries' (NSE:NRAIL) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at N R Agarwal Industries (NSE:NRAIL), it didn't seem to tick all of these boxes.

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. The formula for this calculation on N R Agarwal Industries is:

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

0.073 = ₹972m ÷ (₹18b - ₹4.4b) (Based on the trailing twelve months to September 2024).

Thus, N R Agarwal Industries has an ROCE of 7.3%. 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

Historical performance is a great place to start when researching a stock so above you can see the gauge for N R Agarwal Industries' ROCE against it's prior returns. 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 Can We Tell From N R Agarwal Industries' ROCE Trend?

In terms of N R Agarwal Industries' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.3% from 24% five years ago. 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 may take some time before the company starts to see any change in earnings from these investments.

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. And investors may be recognizing these trends since the stock has only returned a total of 36% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about N R Agarwal Industries, we've spotted 4 warning signs, and 1 of them is a bit concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.