Orient Ceratech (NSE:ORIENTCER) Might Be Having Difficulty Using Its Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after investigating Orient Ceratech (NSE:ORIENTCER), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Orient Ceratech:

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

0.049 = ₹164m ÷ (₹4.2b - ₹853m) (Based on the trailing twelve months to March 2025).

Therefore, Orient Ceratech has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

See our latest analysis for Orient Ceratech

Historical performance is a great place to start when researching a stock so above you can see the gauge for Orient Ceratech's ROCE against it's prior returns. If you're interested in investigating Orient Ceratech's past further, check out this free graph covering Orient Ceratech's past earnings, revenue and cash flow.

What Does the ROCE Trend For Orient Ceratech Tell Us?

On the surface, the trend of ROCE at Orient Ceratech doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.9% from 13% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Orient Ceratech's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 130% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 3 warning signs facing Orient Ceratech that you might find interesting.

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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.