Returns On Capital Are Showing Encouraging Signs At Vishwaraj Sugar Industries (NSE:VISHWARAJ)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at Vishwaraj Sugar Industries (NSE:VISHWARAJ) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.15 = ₹517m ÷ (₹5.8b - ₹2.4b) (Based on the trailing twelve months to June 2021).

Thus, Vishwaraj Sugar Industries has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Food industry.

See our latest analysis for Vishwaraj Sugar Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Vishwaraj Sugar Industries' ROCE against it's prior returns. 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

Investors would be pleased with what's happening at Vishwaraj Sugar Industries. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. 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%. 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, Vishwaraj Sugar Industries has decreased current liabilities to 41% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

In Conclusion...

All in all, it's terrific to see that Vishwaraj Sugar Industries is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 71% return over the last year. 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 4 warning signs for Vishwaraj Sugar Industries (1 is a bit unpleasant) 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.

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.

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