Everest Kanto Cylinder (NSE:EKC) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Everest Kanto Cylinder's (NSE:EKC) returns on capital, so let's have 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. The formula for this calculation on Everest Kanto Cylinder is:

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

0.10 = ₹1.3b ÷ (₹15b - ₹3.4b) (Based on the trailing twelve months to December 2024).

So, Everest Kanto Cylinder has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Packaging industry average of 12%.

View our latest analysis for Everest Kanto Cylinder

Above you can see how the current ROCE for Everest Kanto Cylinder compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Everest Kanto Cylinder for free.

So How Is Everest Kanto Cylinder's ROCE Trending?

The trends we've noticed at Everest Kanto Cylinder 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 88%. So we're very much inspired by what we're seeing at Everest Kanto Cylinder thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 22%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Everest Kanto Cylinder's ROCE

In summary, it's great to see that Everest Kanto Cylinder can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 491% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Everest Kanto Cylinder can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Everest Kanto Cylinder, we've discovered 2 warning signs that you should be aware of.

While Everest Kanto Cylinder isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.