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Will The ROCE Trend At Vikas Proppant & Granite (NSE:VIKASPROP) Continue?
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Vikas Proppant & Granite's (NSE:VIKASPROP) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What is it?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Vikas Proppant & Granite, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.047 = ₹94m ÷ (₹4.0b - ₹2.0b) (Based on the trailing twelve months to June 2020).
Therefore, Vikas Proppant & Granite has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 13%.
View our latest analysis for Vikas Proppant & Granite
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'd like to look at how Vikas Proppant & Granite has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Vikas Proppant & Granite Tell Us?
While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 1,838% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 51% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.Our Take On Vikas Proppant & Granite's ROCE
In summary, we're delighted to see that Vikas Proppant & Granite has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 48% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you want to continue researching Vikas Proppant & Granite, you might be interested to know about the 5 warning signs that our analysis has discovered.
While Vikas Proppant & Granite 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. 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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About NSEI:VIKASPROP
Vikas Proppant & Granite
Engages in the oil fracturing proppants used in cuttings of granite stones in India.
Weak fundamentals or lack of information.
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