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DCM Shriram Industries (NSE:DCMSRIND) Could Be Struggling To Allocate Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 DCM Shriram Industries (NSE:DCMSRIND) and its ROCE trend, we weren't exactly thrilled.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for DCM Shriram Industries, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.094 = ₹1.1b ÷ (₹20b - ₹8.2b) (Based on the trailing twelve months to September 2025).
So, DCM Shriram Industries has an ROCE of 9.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 14%.
Check out our latest analysis for DCM Shriram Industries
Historical performance is a great place to start when researching a stock so above you can see the gauge for DCM Shriram Industries' ROCE against it's prior returns. If you're interested in investigating DCM Shriram Industries' past further, check out this free graph covering DCM Shriram Industries' past earnings, revenue and cash flow.
What Does the ROCE Trend For DCM Shriram Industries Tell Us?
When we looked at the ROCE trend at DCM Shriram Industries, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 9.4% from 12% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
Another thing to note, DCM Shriram Industries has a high ratio of current liabilities to total assets of 42%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
What We Can Learn From DCM Shriram Industries' ROCE
Bringing it all together, while we're somewhat encouraged by DCM Shriram Industries' reinvestment in its own business, we're aware that returns are shrinking. And in the last three years, the stock has given away 23% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think DCM Shriram Industries has the makings of a multi-bagger.
On a final note, we found 4 warning signs for DCM Shriram Industries (1 is significant) 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.