Returns On Capital At Sirca Paints India (NSE:SIRCA) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, the ROCE of Sirca Paints India (NSE:SIRCA) looks decent, right now, so lets see what the trend of returns can tell us.

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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. The formula for this calculation on Sirca Paints India is:

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

0.18 = ₹581m ÷ (₹3.7b - ₹444m) (Based on the trailing twelve months to December 2024).

Therefore, Sirca Paints India has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Retail Distributors industry average of 4.5% it's much better.

Check out our latest analysis for Sirca Paints India

In the above chart we have measured Sirca Paints India's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Sirca Paints India for free.

So How Is Sirca Paints India's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 80% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Sirca Paints India has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Sirca Paints India's ROCE

In the end, Sirca Paints India has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 153% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Sirca Paints India does have some risks though, and we've spotted 1 warning sign for Sirca Paints India that you might be interested in.

While Sirca Paints India 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.