Pudumjee Paper Products (NSE:PDMJEPAPER) Hasn't Managed To Accelerate Its Returns

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Pudumjee Paper Products (NSE:PDMJEPAPER) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Pudumjee Paper Products is:

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

0.12 = ₹449m ÷ (₹4.8b - ₹1.0b) (Based on the trailing twelve months to December 2020).

Therefore, Pudumjee Paper Products has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 9.3% it's much better.

Check out our latest analysis for Pudumjee Paper Products

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pudumjee Paper Products' ROCE against it's prior returns. If you'd like to look at how Pudumjee Paper Products has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 149% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Pudumjee Paper Products' ROCE

In the end, Pudumjee Paper Products has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 5.2% over the last three years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a separate note, we've found 4 warning signs for Pudumjee Paper Products you'll probably want to know about.

While Pudumjee Paper Products 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. 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.
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