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    There Are Reasons To Feel Uneasy About Hi-Green Carbon's (NSE:HIGREEN) Returns On Capital

    Simply Wall St·12/28/2025 03:47:00
    語音播報

    Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Hi-Green Carbon (NSE:HIGREEN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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    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. To calculate this metric for Hi-Green Carbon, this is the formula:

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

    0.10 = ₹135m ÷ (₹1.7b - ₹367m) (Based on the trailing twelve months to September 2025).

    Therefore, Hi-Green Carbon has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Chemicals industry.

    View our latest analysis for Hi-Green Carbon

    roce
    NSEI:HIGREEN Return on Capital Employed December 28th 2025

    Historical performance is a great place to start when researching a stock so above you can see the gauge for Hi-Green Carbon's ROCE against it's prior returns. If you're interested in investigating Hi-Green Carbon's past further, check out this free graph covering Hi-Green Carbon's past earnings, revenue and cash flow.

    What The Trend Of ROCE Can Tell Us

    On the surface, the trend of ROCE at Hi-Green Carbon doesn't inspire confidence. Around four years ago the returns on capital were 14%, but since then they've fallen to 10%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

    On a side note, Hi-Green Carbon has done well to pay down its current liabilities to 21% 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. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

    The Key Takeaway

    While returns have fallen for Hi-Green Carbon in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 30% over the last year, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

    Hi-Green Carbon does have some risks, we noticed 5 warning signs (and 2 which can't be ignored) we think you should know about.

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