Why The 23% Return On Capital At Ice Make Refrigeration (NSE:ICEMAKE) Should Have Your Attention

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Ice Make Refrigeration's (NSE:ICEMAKE) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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 Ice Make Refrigeration, this is the formula:

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

0.23 = ₹373m ÷ (₹2.8b - ₹1.2b) (Based on the trailing twelve months to December 2024).

So, Ice Make Refrigeration has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Machinery industry average of 16%.

See our latest analysis for Ice Make Refrigeration

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 Ice Make Refrigeration has performed in the past in other metrics, you can view this free graph of Ice Make Refrigeration's past earnings, revenue and cash flow.

What Can We Tell From Ice Make Refrigeration's ROCE Trend?

We like the trends that we're seeing from Ice Make Refrigeration. The data shows that returns on capital have increased substantially over the last five years to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 203% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Ice Make Refrigeration has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

All in all, it's terrific to see that Ice Make Refrigeration is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 3,034% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

If you'd like to know more about Ice Make Refrigeration, we've spotted 2 warning signs, and 1 of them is significant.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.