Pudumjee Paper Products (NSE:PDMJEPAPER) Is Investing Its Capital With Increasing Efficiency

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Pudumjee Paper Products' (NSE:PDMJEPAPER) look very promising so lets take a look.

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 Pudumjee Paper Products:

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

0.24 = ₹1.5b ÷ (₹7.7b - ₹1.2b) (Based on the trailing twelve months to September 2024).

So, Pudumjee Paper Products has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Forestry industry average of 10%.

View 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 Pudumjee Paper Products' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Pudumjee Paper Products is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 76% more capital is being employed now too. So we're very much inspired by what we're seeing at Pudumjee Paper Products thanks to its ability to profitably reinvest capital.

One more thing to note, Pudumjee Paper Products has decreased current liabilities to 16% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

To sum it up, Pudumjee Paper Products has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 1,351% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Pudumjee Paper Products, you might be interested to know about the 1 warning sign that our analysis has discovered.

Pudumjee Paper Products is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.