Returns Are Gaining Momentum At Kokuyo Camlin (NSE:KOKUYOCMLN)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Kokuyo Camlin (NSE:KOKUYOCMLN) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Kokuyo Camlin is:

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

0.15 = ₹396m ÷ (₹4.4b - ₹1.7b) (Based on the trailing twelve months to March 2023).

Thus, Kokuyo Camlin has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 14%.

Check out our latest analysis for Kokuyo Camlin

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kokuyo Camlin's ROCE against it's prior returns. If you'd like to look at how Kokuyo Camlin has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Kokuyo Camlin is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 74% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Kokuyo Camlin's ROCE

As discussed above, Kokuyo Camlin appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

While Kokuyo Camlin looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KOKUYOCMLN is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.