Investors Will Want K. Kythreotis Holdings' (CSE:KYTH) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, K. Kythreotis Holdings (CSE:KYTH) looks quite promising in regards to its trends of return on capital.

Understanding 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 K. Kythreotis Holdings:

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

0.17 = €2.5m ÷ (€18m - €3.1m) (Based on the trailing twelve months to December 2021).

So, K. Kythreotis Holdings has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Basic Materials industry.

Check out our latest analysis for K. Kythreotis Holdings

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

What Does the ROCE Trend For K. Kythreotis Holdings Tell Us?

Investors would be pleased with what's happening at K. Kythreotis Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 36%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, K. Kythreotis Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for K. Kythreotis Holdings (1 is a bit concerning) you should be aware of.

While K. Kythreotis Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.