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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Pudumjee Paper Products (NSE:PDMJEPAPER) we really liked what we saw.

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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 Pudumjee Paper Products, this is the formula:

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

0.21 = ₹1.4b ÷ (₹7.7b - ₹1.2b) (Based on the trailing twelve months to December 2024).

Therefore, Pudumjee Paper Products has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Forestry industry average of 9.2%.

See 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.

How Are Returns Trending?

Investors would be pleased with what's happening at Pudumjee Paper Products. Over the last five years, returns on capital employed have risen substantially to 21%. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 16%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Pudumjee Paper Products has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Pudumjee Paper Products' ROCE

In summary, it's great to see that Pudumjee Paper Products can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for PDMJEPAPER that compares the share price and estimated value.

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.