Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK) Could Be Struggling To Allocate Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Although, when we looked at Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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 Shree Pushkar Chemicals & Fertilisers is:

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

0.076 = ₹391m ÷ (₹7.1b - ₹2.0b) (Based on the trailing twelve months to March 2024).

So, Shree Pushkar Chemicals & Fertilisers has an ROCE of 7.6%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 13%.

Check out our latest analysis for Shree Pushkar Chemicals & Fertilisers

Historical performance is a great place to start when researching a stock so above you can see the gauge for Shree Pushkar Chemicals & Fertilisers' ROCE against it's prior returns. 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.

So How Is Shree Pushkar Chemicals & Fertilisers' ROCE Trending?

On the surface, the trend of ROCE at Shree Pushkar Chemicals & Fertilisers doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 7.6%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Shree Pushkar Chemicals & Fertilisers' ROCE

Bringing it all together, while we're somewhat encouraged by Shree Pushkar Chemicals & Fertilisers' reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 154% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we've found 2 warning signs for Shree Pushkar Chemicals & Fertilisers that we think you should be aware of.

While Shree Pushkar Chemicals & Fertilisers 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com