There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Adani Green Energy (NSE:ADANIGREEN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. The formula for this calculation on Adani Green Energy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = ₹70b ÷ (₹1.1t - ₹169b) (Based on the trailing twelve months to June 2025).
Therefore, Adani Green Energy has an ROCE of 7.4%. On its own that's a low return, but compared to the average of 5.8% generated by the Renewable Energy industry, it's much better.
See our latest analysis for Adani Green Energy
Above you can see how the current ROCE for Adani Green Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Adani Green Energy .
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Adani Green Energy doesn't inspire confidence. To be more specific, ROCE has fallen from 10% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Key Takeaway
In summary, despite lower returns in the short term, we're encouraged to see that Adani Green Energy is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 40% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.
One more thing, we've spotted 1 warning sign facing Adani Green Energy that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.