Kirloskar Oil Engines (NSE:KIRLOSENG) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Kirloskar Oil Engines (NSE:KIRLOSENG) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Kirloskar Oil Engines, this is the formula:

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

0.18 = ₹8.0b ÷ (₹70b - ₹26b) (Based on the trailing twelve months to December 2023).

Therefore, Kirloskar Oil Engines has an ROCE of 18%. By itself that's a normal return on capital and it's in line with the industry's average returns of 18%.

See our latest analysis for Kirloskar Oil Engines

Above you can see how the current ROCE for Kirloskar Oil Engines compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kirloskar Oil Engines .

So How Is Kirloskar Oil Engines' ROCE Trending?

We like the trends that we're seeing from Kirloskar Oil Engines. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 145%. So we're very much inspired by what we're seeing at Kirloskar Oil Engines thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Kirloskar Oil Engines has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 661% 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.

On a final note, we found 2 warning signs for Kirloskar Oil Engines (1 is a bit unpleasant) you should be aware of.

While Kirloskar Oil Engines 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. 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.