Has Kirloskar Industries (NSE:KIRLOSIND) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Kirloskar Industries (NSE:KIRLOSIND) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kirloskar Industries:

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

0.11 = ₹1.8b ÷ (₹23b - ₹7.1b) (Based on the trailing twelve months to June 2020).

So, Kirloskar Industries has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 9.8%.

See our latest analysis for Kirloskar Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Kirloskar Industries, check out these free graphs here.

What Can We Tell From Kirloskar Industries' ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 50% more capital into its operations. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Kirloskar Industries' ROCE

The main thing to remember is that Kirloskar Industries has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 7.0% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Kirloskar Industries is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Kirloskar Industries does come with some risks, and we've found 2 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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