Returns At Vishwaraj Sugar Industries (NSE:VISHWARAJ) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)

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 Vishwaraj Sugar Industries:

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

0.14 = ₹531m ÷ (₹7.3b - ₹3.5b) (Based on the trailing twelve months to March 2023).

So, Vishwaraj Sugar Industries has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% 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'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.

The Trend Of ROCE

The trends we've noticed at Vishwaraj Sugar Industries are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. 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 34%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, Vishwaraj Sugar Industries' current liabilities are still rather high at 48% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Vishwaraj Sugar Industries' ROCE

To sum it up, Vishwaraj Sugar Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 10% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Vishwaraj Sugar Industries (of which 1 is a bit unpleasant!) that you should know about.

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.

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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.