Why You Should Care About Anjani Portland Cement's (NSE:APCL) Strong Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, the ROCE of Anjani Portland Cement (NSE:APCL) looks attractive right now, so lets see what the trend of returns can tell us.

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 Anjani Portland Cement, this is the formula:

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

0.25 = ₹952m ÷ (₹4.7b - ₹912m) (Based on the trailing twelve months to March 2021).

So, Anjani Portland Cement has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Basic Materials industry average of 13%.

See our latest analysis for Anjani Portland Cement

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 Anjani Portland Cement has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Anjani Portland Cement's ROCE Trending?

We'd be pretty happy with returns on capital like Anjani Portland Cement. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 84% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

The Bottom Line On Anjani Portland Cement's ROCE

In short, we'd argue Anjani Portland Cement has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And since the stock has risen strongly over the last three years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Like most companies, Anjani Portland Cement does come with some risks, and we've found 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.
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