Capital Investment Trends At KEC International (NSE:KEC) Look Strong

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over KEC International's (NSE:KEC) trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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 KEC International:

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

0.27 = ₹8.9b ÷ (₹131b - ₹98b) (Based on the trailing twelve months to December 2020).

Therefore, KEC International has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Construction industry average of 8.4%.

View our latest analysis for KEC International

Above you can see how the current ROCE for KEC International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering KEC International here for free.

So How Is KEC International's ROCE Trending?

It's hard not to be impressed by KEC International's returns on capital. The company has employed 52% more capital in the last five years, and the returns on that capital have remained stable at 27%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If KEC International can keep this up, we'd be very optimistic about its future.

On a side note, KEC International's current liabilities are still rather high at 75% of total assets. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In summary, we're delighted to see that KEC International has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 217% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 2 warning signs for KEC International that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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