We Like Kothari Sugars and Chemicals' (NSE:KOTARISUG) Returns And Here's How They're Trending

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Kothari Sugars and Chemicals (NSE:KOTARISUG) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Kothari Sugars and Chemicals, this is the formula:

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

0.25 = ₹611m ÷ (₹3.9b - ₹1.5b) (Based on the trailing twelve months to June 2022).

Therefore, Kothari Sugars and Chemicals has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Food industry average of 14%.

See our latest analysis for Kothari Sugars and Chemicals

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kothari Sugars and Chemicals' ROCE against it's prior returns. 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.

What The Trend Of ROCE Can Tell Us

Kothari Sugars and Chemicals' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 197% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

To bring it all together, Kothari Sugars and Chemicals has done well to increase the returns it's generating from its capital employed. And a remarkable 172% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Kothari Sugars and Chemicals that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.