Returns On Capital Signal Tricky Times Ahead For Uttam Sugar Mills (NSE:UTTAMSUGAR)
There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Looking at Uttam Sugar Mills (NSE:UTTAMSUGAR), it does have a high ROCE right now, but lets see how returns are trending.
Return On Capital Employed (ROCE): What Is It?
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 Uttam Sugar Mills:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = ₹2.0b ÷ (₹13b - ₹3.1b) (Based on the trailing twelve months to September 2025).
Thus, Uttam Sugar Mills has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Food industry average of 14%.
Check out our latest analysis for Uttam Sugar Mills
Historical performance is a great place to start when researching a stock so above you can see the gauge for Uttam Sugar Mills' ROCE against it's prior returns. If you're interested in investigating Uttam Sugar Mills' past further, check out this free graph covering Uttam Sugar Mills' past earnings, revenue and cash flow.
So How Is Uttam Sugar Mills' ROCE Trending?
On the surface, the trend of ROCE at Uttam Sugar Mills doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 30% where it was five years ago. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
On a side note, Uttam Sugar Mills has done well to pay down its current liabilities to 24% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
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 Uttam Sugar Mills. And the stock has done incredibly well with a 149% 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.
Uttam Sugar Mills could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for UTTAMSUGAR on our platform quite valuable.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.