We Like Uttam Sugar Mills' (NSE:UTTAMSUGAR) Returns And Here's How They're Trending

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Uttam Sugar Mills' (NSE:UTTAMSUGAR) 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. The formula for this calculation on Uttam Sugar Mills is:

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

0.30 = ₹1.9b ÷ (₹15b - ₹9.2b) (Based on the trailing twelve months to December 2020).

Therefore, Uttam Sugar Mills has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

View our latest analysis for Uttam Sugar Mills

Historical performance is a great place to start when researching a stock so above you can see the gauge for Uttam Sugar Mills' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Uttam Sugar Mills, check out these free graphs here.

What Does the ROCE Trend For Uttam Sugar Mills Tell Us?

Investors would be pleased with what's happening at Uttam Sugar Mills. Over the last five years, returns on capital employed have risen substantially to 30%. Basically the business is earning more per dollar of capital invested and in addition to that, 202% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Uttam Sugar Mills has decreased current liabilities to 60% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Key Takeaway

All in all, it's terrific to see that Uttam Sugar Mills is reaping the rewards from prior investments and is growing its capital base. And a remarkable 285% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Uttam Sugar Mills, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

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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