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

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Vishwaraj Sugar Industries' (NSE:VISHWARAJ) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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)

0.10 = ₹414m ÷ (₹7.8b - ₹3.7b) (Based on the trailing twelve months to December 2023).

Therefore, Vishwaraj Sugar Industries has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Food industry average it falls behind.

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 , check out these free graphs detailing revenue and cash flow performance of Vishwaraj Sugar Industries.

What Does the ROCE Trend For Vishwaraj Sugar Industries Tell Us?

The trends we've noticed at Vishwaraj Sugar Industries are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 42%. So we're very much inspired by what we're seeing at Vishwaraj Sugar Industries thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 48%, 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

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. Astute investors may have an opportunity here because the stock has declined 26% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Vishwaraj Sugar Industries we've found 4 warning signs (3 are significant!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.