Will Kabra Extrusiontechnik (NSE:KABRAEXTRU) Multiply In Value Going Forward?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Kabra Extrusiontechnik (NSE:KABRAEXTRU), it didn't seem to tick all of these boxes.

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

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. The formula for this calculation on Kabra Extrusiontechnik is:

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

0.066 = ₹178m ÷ (₹3.9b - ₹1.2b) (Based on the trailing twelve months to December 2020).

Thus, Kabra Extrusiontechnik has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.8%.

Check out 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'd like to look at how Kabra Extrusiontechnik has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at Kabra Extrusiontechnik doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.6% from 16% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From Kabra Extrusiontechnik's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Kabra Extrusiontechnik have fallen, meanwhile the business is employing more capital than it was five years ago. In spite of that, the stock has delivered a 31% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

If you'd like to know more about Kabra Extrusiontechnik, we've spotted 5 warning signs, and 1 of them is a bit unpleasant.

While Kabra Extrusiontechnik 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. 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.
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