Is K.M. Sugar Mills (NSE:KMSUGAR) Likely To Turn Things Around?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 K.M. Sugar Mills' (NSE:KMSUGAR) trend of ROCE, we liked what we saw.

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.M. Sugar Mills, this is the formula:

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

0.18 = ₹465m ÷ (₹3.7b - ₹1.0b) (Based on the trailing twelve months to September 2020).

So, K.M. Sugar Mills has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 12% it's much better.

Check out our latest analysis for K.M. Sugar Mills

Historical performance is a great place to start when researching a stock so above you can see the gauge for K.M. Sugar Mills' ROCE against it's prior returns. If you'd like to look at how K.M. Sugar Mills 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 K.M. Sugar Mills' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 228% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that K.M. Sugar Mills has consistently earned this amount. 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.

On a side note, K.M. Sugar Mills has done well to reduce current liabilities to 28% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In the end, K.M. Sugar Mills has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 117% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching K.M. Sugar Mills, you might be interested to know about the 2 warning signs that our analysis has discovered.

While K.M. Sugar Mills may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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