Returns Are Gaining Momentum At Shree Rama Newsprint (NSE:RAMANEWS)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 Shree Rama Newsprint (NSE:RAMANEWS) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Shree Rama Newsprint:

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

0.022 = ₹75m ÷ (₹5.1b - ₹1.8b) (Based on the trailing twelve months to March 2025).

Thus, Shree Rama Newsprint has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 8.0%.

Check out our latest analysis for Shree Rama Newsprint

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Shree Rama Newsprint's past further, check out this free graph covering Shree Rama Newsprint's past earnings, revenue and cash flow.

What Can We Tell From Shree Rama Newsprint's ROCE Trend?

We're delighted to see that Shree Rama Newsprint is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, Shree Rama Newsprint is using 34% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Shree Rama Newsprint could be selling under-performing assets since the ROCE is improving.

What We Can Learn From Shree Rama Newsprint's ROCE

In summary, it's great to see that Shree Rama Newsprint has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a staggering 104% 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.

One final note, you should learn about the 2 warning signs we've spotted with Shree Rama Newsprint (including 1 which doesn't sit too well with us) .

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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.