Orient Paper & Industries (NSE:ORIENTPPR) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Orient Paper & Industries (NSE:ORIENTPPR) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Orient Paper & Industries, this is the formula:

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

0.091 = ₹1.8b ÷ (₹22b - ₹2.7b) (Based on the trailing twelve months to June 2023).

Thus, Orient Paper & Industries has an ROCE of 9.1%. Ultimately, that's a low return and it under-performs the Forestry industry average of 15%.

View our latest analysis for Orient Paper & Industries

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

The Trend Of ROCE

Orient Paper & Industries' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 63% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Orient Paper & Industries' ROCE

To bring it all together, Orient Paper & Industries has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 6.8% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we found 3 warning signs for Orient Paper & Industries (1 is a bit concerning) you should be aware of.

While Orient Paper & Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.