Shareholders Are Optimistic That Ruchira Papers (NSE:RUCHIRA) Will Multiply In Value

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Ruchira Papers (NSE:RUCHIRA) looks attractive right now, so lets see what the trend of returns can tell us.

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)

0.26 = ₹1.1b ÷ (₹5.1b - ₹899m) (Based on the trailing twelve months to June 2023).

Therefore, Ruchira Papers has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Forestry industry average of 15%.

Check out our latest analysis for Ruchira Papers

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ruchira Papers' ROCE against it's prior returns. If you're interested in investigating Ruchira Papers' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

It's hard not to be impressed by Ruchira Papers' returns on capital. The company has consistently earned 26% for the last five years, and the capital employed within the business has risen 59% in that time. Now considering ROCE is an attractive 26%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Ruchira Papers has done well to reduce current liabilities to 18% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

Ruchira Papers has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 22% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

Ruchira Papers does have some risks though, and we've spotted 2 warning signs for Ruchira Papers that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.