Returns On Capital At Carborundum Universal (NSE:CARBORUNIV) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Carborundum Universal (NSE:CARBORUNIV), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Carborundum Universal is:

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

0.092 = ₹3.8b ÷ (₹50b - ₹9.0b) (Based on the trailing twelve months to September 2025).

So, Carborundum Universal has an ROCE of 9.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 12%.

See our latest analysis for Carborundum Universal

Above you can see how the current ROCE for Carborundum Universal compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Carborundum Universal .

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Carborundum Universal doesn't inspire confidence. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like Carborundum Universal might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Carborundum Universal's ROCE

Bringing it all together, while we're somewhat encouraged by Carborundum Universal's reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 100% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Carborundum Universal does come with some risks, and we've found 3 warning signs that you should be aware of.

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.

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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.