Investors Could Be Concerned With Seya Industries' (NSE:SEYAIND) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Seya Industries (NSE:SEYAIND), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Seya Industries is:

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

0.00044 = ₹7.3m ÷ (₹17b - ₹977m) (Based on the trailing twelve months to December 2021).

So, Seya Industries has an ROCE of 0.04%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 18%.

View our latest analysis for Seya Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Seya Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Seya Industries, check out these free graphs here.

What Does the ROCE Trend For Seya Industries Tell Us?

On the surface, the trend of ROCE at Seya Industries doesn't inspire confidence. Around five years ago the returns on capital were 7.7%, but since then they've fallen to 0.04%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Seya Industries' ROCE

To conclude, we've found that Seya Industries is reinvesting in the business, but returns have been falling. Since the stock has declined 18% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to know some of the risks facing Seya Industries we've found 4 warning signs (2 make us uncomfortable!) that you should be aware of before investing here.

While Seya Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.