Returns Are Gaining Momentum At Vishwaraj Sugar Industries (NSE:VISHWARAJ)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Vishwaraj Sugar Industries (NSE:VISHWARAJ) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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 Vishwaraj Sugar Industries is:

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

0.14 = ₹452m ÷ (₹7.3b - ₹4.2b) (Based on the trailing twelve months to December 2020).

Thus, Vishwaraj Sugar Industries has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Food industry.

View 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 want to delve into the historical earnings, revenue and cash flow of Vishwaraj Sugar Industries, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Vishwaraj Sugar Industries. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at Vishwaraj Sugar Industries thanks to its ability to profitably reinvest capital.

Another thing to note, Vishwaraj Sugar Industries has a high ratio of current liabilities to total assets of 57%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Vishwaraj Sugar Industries' ROCE

In summary, it's great to see that Vishwaraj Sugar Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 110% to shareholders over the last year, it looks like investors are recognizing 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.

On a final note, we found 2 warning signs for Vishwaraj Sugar Industries (1 is significant) you should be aware of.

While Vishwaraj Sugar Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

If you’re looking to trade Vishwaraj Sugar Industries, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*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.