Investors Should Be Encouraged By Gokul Agro Resources' (NSE:GOKULAGRO) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Gokul Agro Resources (NSE:GOKULAGRO) we really 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. The formula for this calculation on Gokul Agro Resources is:

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

0.33 = ₹1.6b ÷ (₹17b - ₹12b) (Based on the trailing twelve months to December 2021).

So, Gokul Agro Resources has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Food industry average of 13%.

Check out our latest analysis for Gokul Agro Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Gokul Agro Resources' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Gokul Agro Resources, check out these free graphs here.

What Does the ROCE Trend For Gokul Agro Resources Tell Us?

We like the trends that we're seeing from Gokul Agro Resources. The data shows that returns on capital have increased substantially over the last five years to 33%. Basically the business is earning more per dollar of capital invested and in addition to that, 108% more capital is being employed now too. 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.

One more thing to note, Gokul Agro Resources has decreased current liabilities to 72% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Gokul Agro Resources' ROCE

All in all, it's terrific to see that Gokul Agro Resources is reaping the rewards from prior investments and is growing its capital base. And a remarkable 308% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Gokul Agro Resources, you might be interested to know about the 2 warning signs that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.