Everest Kanto Cylinder (NSE:EKC) Might Have The Makings Of A Multi-Bagger

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Everest Kanto Cylinder (NSE:EKC) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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

0.17 = ₹1.7b ÷ (₹14b - ₹3.5b) (Based on the trailing twelve months to December 2022).

So, Everest Kanto Cylinder has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Packaging industry.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Everest Kanto Cylinder

What The Trend Of ROCE Can Tell Us

Everest Kanto Cylinder is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 66%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

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 108% 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 want to know some of the risks facing Everest Kanto Cylinder we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While Everest Kanto Cylinder 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.

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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.