Stock Analysis

Returns At Star Paper Mills (NSE:STARPAPER) Are On The Way Up

NSEI:STARPAPER
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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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Star Paper Mills (NSE:STARPAPER) so let's look a bit deeper.

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. To calculate this metric for Star Paper Mills, this is the formula:

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

0.15 = ₹1.0b ÷ (₹7.3b - ₹545m) (Based on the trailing twelve months to June 2023).

Therefore, Star Paper Mills has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.

Check out our latest analysis for Star Paper Mills

roce
NSEI:STARPAPER Return on Capital Employed August 18th 2023

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

What The Trend Of ROCE Can Tell Us

Star Paper Mills is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 34%. So we're very much inspired by what we're seeing at Star Paper Mills thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Star Paper Mills has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 12% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 2 warning signs with Star Paper Mills and understanding them should be part of your investment process.

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.