Vishwaraj Sugar Industries (NSE:VISHWARAJ) Knows How To Allocate Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. And in light of that, the trends we're seeing at Vishwaraj Sugar Industries' (NSE:VISHWARAJ) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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. 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)

0.21 = ₹779m ÷ (₹7.7b - ₹3.9b) (Based on the trailing twelve months to March 2022).

Therefore, Vishwaraj Sugar Industries has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Food industry average of 12%.

Check out 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're interested in investigating Vishwaraj Sugar Industries' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Vishwaraj Sugar Industries' ROCE Trending?

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 21%. 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 47%. 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.

Another thing to note, Vishwaraj Sugar Industries has a high ratio of current liabilities to total assets of 51%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing 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. Astute investors may have an opportunity here because the stock has declined 38% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

Vishwaraj Sugar Industries does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.