Stove Kraft (NSE:STOVEKRAFT) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Stove Kraft's (NSE:STOVEKRAFT) trend of ROCE, we liked what we saw.

What Is 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 Stove Kraft, this is the formula:

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

0.13 = ₹811m ÷ (₹13b - ₹6.4b) (Based on the trailing twelve months to December 2024).

Therefore, Stove Kraft has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Durables industry.

See our latest analysis for Stove Kraft

Above you can see how the current ROCE for Stove Kraft compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Stove Kraft .

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 281% in that time. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 51% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line On Stove Kraft's ROCE

To sum it up, Stove Kraft has simply been reinvesting capital steadily, at those decent rates of return. However, over the last three years, the stock has only delivered a 15% return to shareholders who held over that period. So to determine if Stove Kraft is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Stove Kraft does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

While Stove Kraft 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.