Can Vishwaraj Sugar Industries (NSE:VISHWARAJ) Continue To Grow 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Vishwaraj Sugar Industries (NSE:VISHWARAJ) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Vishwaraj Sugar Industries, this is the formula:

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

0.093 = ₹282m ÷ (₹5.4b - ₹2.3b) (Based on the trailing twelve months to September 2020).

So, Vishwaraj Sugar Industries has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

Check out our latest analysis for Vishwaraj Sugar Industries

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 Vishwaraj Sugar Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Vishwaraj Sugar Industries' ROCE Trending?

Vishwaraj Sugar Industries' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 41% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a related note, the company's ratio of current liabilities to total assets has decreased to 43%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Key Takeaway

In summary, we're delighted to see that Vishwaraj Sugar Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 27% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Vishwaraj Sugar Industries can keep these trends up, it could have a bright future ahead.

Vishwaraj Sugar Industries does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is concerning...

While Vishwaraj Sugar Industries 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. 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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