Kothari Sugars and Chemicals (NSE:KOTARISUG) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Kothari Sugars and Chemicals' (NSE:KOTARISUG) returns on capital, so let's have a look.

What is 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. Analysts use this formula to calculate it for Kothari Sugars and Chemicals:

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

0.062 = ₹139m ÷ (₹3.4b - ₹1.2b) (Based on the trailing twelve months to June 2021).

Thus, Kothari Sugars and Chemicals has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Food industry average of 12%.

See our latest analysis for Kothari Sugars and Chemicals

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Kothari Sugars and Chemicals has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Kothari Sugars and Chemicals' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 107% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Kothari Sugars and Chemicals' ROCE

To bring it all together, Kothari Sugars and Chemicals has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Kothari Sugars and Chemicals can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Kothari Sugars and Chemicals, we've discovered 2 warning signs that you should be aware of.

While Kothari Sugars and Chemicals 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.

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.

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