Capital Allocation Trends At Indus Gas (LON:INDI) Aren't Ideal

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. On that note, looking into Indus Gas (LON:INDI), we weren't too upbeat about how things were going.

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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. Analysts use this formula to calculate it for Indus Gas:

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

0.03 = US$27m ÷ (US$906m - US$6.3m) (Based on the trailing twelve months to September 2025).

Therefore, Indus Gas has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 6.3%.

View our latest analysis for Indus Gas

Historical performance is a great place to start when researching a stock so above you can see the gauge for Indus Gas' ROCE against it's prior returns. If you'd like to look at how Indus Gas has performed in the past in other metrics, you can view this free graph of Indus Gas' past earnings, revenue and cash flow.

What Does the ROCE Trend For Indus Gas Tell Us?

There is reason to be cautious about Indus Gas, given the returns are trending downwards. To be more specific, the ROCE was 4.4% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Indus Gas becoming one if things continue as they have.

What We Can Learn From Indus Gas' ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. This could explain why the stock has sunk a total of 98% in the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Indus Gas, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Indus Gas isn't earning the highest return, check out this free list of companies that are 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.