Investors Could Be Concerned With Kriti Industries (India)'s (NSE:KRITI) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Kriti Industries (India) (NSE:KRITI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Kriti Industries (India):

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

0.11 = ₹282m ÷ (₹5.3b - ₹2.7b) (Based on the trailing twelve months to December 2024).

Thus, Kriti Industries (India) has an ROCE of 11%. In isolation, that's a pretty standard return but against the Building industry average of 16%, it's not as good.

Check out our latest analysis for Kriti Industries (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kriti Industries (India)'s ROCE against it's prior returns. If you're interested in investigating Kriti Industries (India)'s past further, check out this free graph covering Kriti Industries (India)'s past earnings, revenue and cash flow.

What Does the ROCE Trend For Kriti Industries (India) Tell Us?

Unfortunately, the trend isn't great with ROCE falling from 26% five years ago, while capital employed has grown 92%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Kriti Industries (India)'s earnings and if they change as a result from the capital raise.

On a side note, Kriti Industries (India) has done well to pay down its current liabilities to 51% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.

The Bottom Line On Kriti Industries (India)'s ROCE

Bringing it all together, while we're somewhat encouraged by Kriti Industries (India)'s reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 11% over the last three years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Kriti Industries (India), we've spotted 4 warning signs, and 2 of them are significant.

While Kriti Industries (India) 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.