Konstelec Engineers (NSE:KONSTELEC) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Speaking of which, we noticed some great changes in Konstelec Engineers' (NSE:KONSTELEC) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Konstelec Engineers, this is the formula:

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

0.12 = ₹123m ÷ (₹2.4b - ₹1.4b) (Based on the trailing twelve months to March 2025).

Thus, Konstelec Engineers has an ROCE of 12%. In isolation, that's a pretty standard return but against the Construction industry average of 16%, it's not as good.

Check out our latest analysis for Konstelec Engineers

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Konstelec Engineers' past further, check out this free graph covering Konstelec Engineers' past earnings, revenue and cash flow.

How Are Returns Trending?

The trends we've noticed at Konstelec Engineers are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 12%. The amount of capital employed has increased too, by 93%. 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.

Another thing to note, Konstelec Engineers has a high ratio of current liabilities to total assets of 57%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Konstelec Engineers' ROCE

In summary, it's great to see that Konstelec Engineers can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 61% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Konstelec Engineers, we've spotted 3 warning signs, and 1 of them is significant.

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.