Anik Industries (NSE:ANIKINDS) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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, we've noticed some promising trends at Anik Industries (NSE:ANIKINDS) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Anik Industries is:

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

0.013 = ₹57m ÷ (₹7.8b - ₹3.3b) (Based on the trailing twelve months to December 2021).

Therefore, Anik Industries has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 7.2%.

Check out our latest analysis for Anik Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Anik Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Anik Industries, check out these free graphs here.

What Can We Tell From Anik Industries' ROCE Trend?

We're delighted to see that Anik Industries is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.3% on its capital. And unsurprisingly, like most companies trying to break into the black, Anik Industries is utilizing 23% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Anik Industries has decreased current liabilities to 42% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

To the delight of most shareholders, Anik Industries has now broken into profitability. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 4.0% to shareholders. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Anik Industries we've found 4 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.