Has Ruchira Papers (NSE:RUCHIRA) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Ruchira Papers (NSE:RUCHIRA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Ruchira Papers is:

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

0.0033 = ₹10m ÷ (₹4.0b - ₹954m) (Based on the trailing twelve months to September 2020).

Thus, Ruchira Papers has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Forestry industry average of 7.7%.

See our latest analysis for Ruchira Papers

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 want to delve into the historical earnings, revenue and cash flow of Ruchira Papers, check out these free graphs here.

The Trend Of ROCE

On the surface, the trend of ROCE at Ruchira Papers doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.3% from 21% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a side note, Ruchira Papers has done well to pay down its current liabilities to 24% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Ruchira Papers' ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Ruchira Papers have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 4.9% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

On a final note, we've found 1 warning sign for Ruchira Papers that we think you should be aware of.

While Ruchira Papers isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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