Returns At K.C.P. Sugar and Industries (NSE:KCPSUGIND) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in K.C.P. Sugar and Industries' (NSE:KCPSUGIND) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for K.C.P. Sugar and Industries, this is the formula:

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

0.046 = ₹189m ÷ (₹5.3b - ₹1.2b) (Based on the trailing twelve months to September 2022).

So, K.C.P. Sugar and Industries has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 13%.

Check out our latest analysis for K.C.P. Sugar and Industries

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

What Does the ROCE Trend For K.C.P. Sugar and Industries Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 4.6%. The amount of capital employed has increased too, by 21%. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 22%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that K.C.P. Sugar and Industries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

All in all, it's terrific to see that K.C.P. Sugar and Industries is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 15% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing K.C.P. Sugar and Industries we've found 4 warning signs (1 is significant!) that you should be aware of before investing here.

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.