Lux Industries (NSE:LUXIND) Looks To Prolong Its Impressive Returns

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Lux Industries (NSE:LUXIND), we liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Lux Industries:

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

0.38 = ₹2.3b ÷ (₹9.1b - ₹3.1b) (Based on the trailing twelve months to December 2020).

Thus, Lux Industries has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.

See our latest analysis for Lux Industries

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

What Can We Tell From Lux Industries' ROCE Trend?

Lux Industries deserves to be commended in regards to it's returns. The company has consistently earned 38% for the last five years, and the capital employed within the business has risen 105% in that time. Now considering ROCE is an attractive 38%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Lux Industries can keep this up, we'd be very optimistic about its future.

On a side note, Lux Industries has done well to reduce current liabilities to 34% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Lux Industries' ROCE

Lux Industries has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 162% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Lux Industries does have some risks though, and we've spotted 1 warning sign for Lux Industries that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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