PhosAgro (MCX:PHOR) Knows How To Allocate Capital

By
Simply Wall St
Published
January 13, 2022
MISX:PHOR
Source: Shutterstock

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at PhosAgro's (MCX:PHOR) ROCE trend, we were very happy with what we saw.

Understanding 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 PhosAgro, this is the formula:

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

0.38 = ₽123b ÷ (₽409b - ₽87b) (Based on the trailing twelve months to September 2021).

So, PhosAgro has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 31% earned by companies in a similar industry.

See our latest analysis for PhosAgro

roce
MISX:PHOR Return on Capital Employed January 13th 2022

Above you can see how the current ROCE for PhosAgro 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 report on analyst forecasts for the company.

What Does the ROCE Trend For PhosAgro Tell Us?

In terms of PhosAgro's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 38% and the business has deployed 70% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If PhosAgro can keep this up, we'd be very optimistic about its future.

The Key Takeaway

PhosAgro has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 219% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to know some of the risks facing PhosAgro we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

PhosAgro is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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