Returns Are Gaining Momentum At Kabra Extrusiontechnik (NSE:KABRAEXTRU)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Kabra Extrusiontechnik (NSE:KABRAEXTRU) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Kabra Extrusiontechnik:

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

0.16 = ₹644m ÷ (₹6.3b - ₹2.3b) (Based on the trailing twelve months to June 2023).

Therefore, Kabra Extrusiontechnik has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 17% generated by the Machinery industry.

See our latest analysis for Kabra Extrusiontechnik

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

What Does the ROCE Trend For Kabra Extrusiontechnik Tell Us?

Investors would be pleased with what's happening at Kabra Extrusiontechnik. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 72%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, Kabra Extrusiontechnik has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 499% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Kabra Extrusiontechnik, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.