Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK) Might Be Having Difficulty Using Its Capital Effectively

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Shree Pushkar Chemicals & Fertilisers (NSE:SHREEPUSHK), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.087 = ₹412m ÷ (₹6.6b - ₹1.8b) (Based on the trailing twelve months to June 2023).

So, Shree Pushkar Chemicals & Fertilisers has an ROCE of 8.7%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 14%.

View 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 want to delve into the historical earnings, revenue and cash flow of Shree Pushkar Chemicals & Fertilisers, check out these free graphs here.

The Trend Of ROCE

On the surface, the trend of ROCE at Shree Pushkar Chemicals & Fertilisers doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.7% from 22% five years ago. 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 may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Shree Pushkar Chemicals & Fertilisers' ROCE

To conclude, we've found that Shree Pushkar Chemicals & Fertilisers is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 7.3% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Like most companies, Shree Pushkar Chemicals & Fertilisers does come with some risks, and we've found 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.