Some Investors May Be Worried About Adani Total Gas' (NSE:ATGL) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Adani Total Gas (NSE:ATGL) and its ROCE trend, we weren't exactly thrilled.

We check all companies for important risks. See what we found for Adani Total Gas in our free report.

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. Analysts use this formula to calculate it for Adani Total Gas:

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

0.15 = ₹9.3b ÷ (₹77b - ₹15b) (Based on the trailing twelve months to March 2025).

Thus, Adani Total Gas has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 14% generated by the Gas Utilities industry.

View our latest analysis for Adani Total Gas

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

What Does the ROCE Trend For Adani Total Gas Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 29% five years ago, while the business's capital employed increased by 225%. Usually this isn't ideal, but given Adani Total Gas conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Adani Total Gas might not have received a full period of earnings contribution from it. Additionally, we found that Adani Total Gas' most recent EBIT figure is around the same as the prior year, so we'd attribute the drop in ROCE mostly to the capital raise.

The Bottom Line

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Adani Total Gas. And the stock has done incredibly well with a 461% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Adani Total Gas it's worth checking out our FREE intrinsic value approximation for ATGL to see if it's trading at an attractive price in other respects.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.