Our Take On The Returns On Capital At Visaka Industries (NSE:VISAKAIND)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Visaka Industries (NSE:VISAKAIND) 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. To calculate this metric for Visaka Industries, this is the formula:

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

0.12 = ₹752m ÷ (₹9.4b - ₹3.4b) (Based on the trailing twelve months to March 2020).

Therefore, Visaka Industries has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 10% generated by the Basic Materials industry.

See our latest analysis for Visaka Industries

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

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 34% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Visaka Industries has consistently earned this amount. 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.

The Bottom Line On Visaka Industries' ROCE

In the end, Visaka Industries has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 120% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Visaka Industries, we've discovered 4 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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