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Patanjali Foods (NSE:PATANJALI) Is Looking To Continue Growing Its Returns On Capital

Simply Wall St · 06/27 00:27

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So when we looked at Patanjali Foods (NSE:PATANJALI) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for Patanjali Foods, this is the formula:

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

0.15 = ₹17b ÷ (₹155b - ₹41b) (Based on the trailing twelve months to March 2025).

Thus, Patanjali Foods has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Food industry.

View our latest analysis for Patanjali Foods

roce
NSEI:PATANJALI Return on Capital Employed June 27th 2025

In the above chart we have measured Patanjali Foods' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Patanjali Foods .

What Can We Tell From Patanjali Foods' ROCE Trend?

Investors would be pleased with what's happening at Patanjali Foods. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 72%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 26% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Patanjali Foods' ROCE

In summary, it's great to see that Patanjali Foods can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 36% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Like most companies, Patanjali Foods does come with some risks, and we've found 1 warning sign that you should be aware of.

While Patanjali Foods isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.