There's Been No Shortage Of Growth Recently For Krishival Foods' (NSE:KRISHIVAL) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Krishival Foods (NSE:KRISHIVAL) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Krishival Foods:

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

0.11 = ₹136m ÷ (₹1.3b - ₹42m) (Based on the trailing twelve months to September 2023).

So, Krishival Foods has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Food industry average it falls behind.

Check out our latest analysis for Krishival Foods

Historical performance is a great place to start when researching a stock so above you can see the gauge for Krishival Foods' ROCE against it's prior returns. If you're interested in investigating Krishival Foods' past further, check out this free graph covering Krishival Foods' past earnings, revenue and cash flow.

What Does the ROCE Trend For Krishival Foods Tell Us?

Krishival Foods is displaying some positive trends. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 342%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 3.3%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Krishival Foods' ROCE

To sum it up, Krishival Foods has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 0.02% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Krishival Foods we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Krishival Foods isn't earning the highest return, check out this free list of companies that are 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.