Ice Make Refrigeration (NSE:ICEMAKE) Is Achieving High Returns On Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. And in light of that, the trends we're seeing at Ice Make Refrigeration's (NSE:ICEMAKE) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ice Make Refrigeration is:

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

0.33 = ₹282m ÷ (₹1.6b - ₹729m) (Based on the trailing twelve months to March 2023).

Thus, Ice Make Refrigeration has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Check out our latest analysis for Ice Make Refrigeration

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ice Make Refrigeration's ROCE against it's prior returns. If you'd like to look at how Ice Make Refrigeration has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Ice Make Refrigeration's ROCE Trending?

Ice Make Refrigeration is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 33%. Basically the business is earning more per dollar of capital invested and in addition to that, 84% more capital is being employed now too. So we're very much inspired by what we're seeing at Ice Make Refrigeration thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Ice Make Refrigeration has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

To sum it up, Ice Make Refrigeration 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. In light of that, we think it's worth looking further into this stock because if Ice Make Refrigeration can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Ice Make Refrigeration, we've discovered 2 warning signs that you should be aware of.

Ice Make Refrigeration is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.