The Returns At Surya Roshni (NSE:SURYAROSNI) Aren't Growing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Surya Roshni's (NSE:SURYAROSNI) trend of ROCE, we liked what we saw.

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 Surya Roshni, this is the formula:

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

0.19 = ₹3.2b ÷ (₹31b - ₹15b) (Based on the trailing twelve months to September 2021).

Therefore, Surya Roshni has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 16% generated by the Metals and Mining industry.

Check out our latest analysis for Surya Roshni

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

What Can We Tell From Surya Roshni's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 53% more capital into its operations. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Surya Roshni has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Surya Roshni's ROCE

In the end, Surya Roshni has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 187% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Surya Roshni does have some risks though, and we've spotted 3 warning signs for Surya Roshni that you might be interested in.

While Surya Roshni isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.