There's Been No Shortage Of Growth Recently For Kirloskar Oil Engines' (NSE:KIRLOSENG) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Kirloskar Oil Engines (NSE:KIRLOSENG) so let's look a bit deeper.

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)

0.17 = ₹7.4b ÷ (₹70b - ₹26b) (Based on the trailing twelve months to September 2023).

So, Kirloskar Oil Engines has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 16% generated by the Machinery industry.

See our latest analysis for Kirloskar Oil Engines

In the above chart we have measured Kirloskar Oil Engines' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kirloskar Oil Engines.

What Does the ROCE Trend For Kirloskar Oil Engines Tell Us?

Kirloskar Oil Engines is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital 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 On Kirloskar Oil Engines' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Kirloskar Oil Engines has. Since the stock has returned a staggering 230% 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.

On a final note, we found 3 warning signs for Kirloskar Oil Engines (2 are a bit concerning) you should be aware of.

While Kirloskar Oil Engines isn't earning the highest return, check out this free list of companies that are 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.