Be Wary Of Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK) And Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Shree Pushkar Chemicals & Fertilisers, this is the formula:

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

0.086 = ₹475m ÷ (₹7.8b - ₹2.2b) (Based on the trailing twelve months to September 2024).

Therefore, Shree Pushkar Chemicals & Fertilisers has an ROCE of 8.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 13%.

See our latest analysis for Shree Pushkar Chemicals & Fertilisers

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'd like to look at how Shree Pushkar Chemicals & Fertilisers has performed in the past in other metrics, you can view this free graph of Shree Pushkar Chemicals & Fertilisers' past earnings, revenue and cash flow.

What Does the ROCE Trend For Shree Pushkar Chemicals & Fertilisers Tell Us?

In terms of Shree Pushkar Chemicals & Fertilisers' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.6% from 14% five years ago. However it looks like Shree Pushkar Chemicals & Fertilisers might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

In Conclusion...

In summary, Shree Pushkar Chemicals & Fertilisers is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 162% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Shree Pushkar Chemicals & Fertilisers, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.