Return Trends At SKM Egg Products Export (India) (NSE:SKMEGGPROD) Aren't Appealing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of SKM Egg Products Export (India) (NSE:SKMEGGPROD) looks decent, right now, so lets see what the trend of returns 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. The formula for this calculation on SKM Egg Products Export (India) is:

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

0.19 = ₹247m ÷ (₹2.1b - ₹824m) (Based on the trailing twelve months to June 2021).

So, SKM Egg Products Export (India) has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 11% it's much better.

See our latest analysis for SKM Egg Products Export (India)

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

So How Is SKM Egg Products Export (India)'s ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 30% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

What We Can Learn From SKM Egg Products Export (India)'s ROCE

To sum it up, SKM Egg Products Export (India) has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 30% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you want to continue researching SKM Egg Products Export (India), you might be interested to know about the 4 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

When trading SKM Egg Products Export (India) or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.